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Thread: Tax implications when selling a home inherited in a trust

  1. #1
    Borneo Diver is offline Junior Member
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    Tax implications when selling a home inherited in a trust

    What is the name of your state (only U.S. law)? Arizona
    When my Father died he had a trust which left his estate, including a house to be divided between his children. We had the house appraised to establish the step-up basis and put it on the market, selling it within four months for less than the appraisal. The total value of the estate was less than $500K. Are we allowed to claim the difference between appraisal and sale price as a loss? And if so is it a short term or long term capital loss? Thanks for your help
  2. #2
    FlyingRon is online now Senior Member
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    You have two problems. First, the actual sale so close to the date of the appraisal is pretty much going to indicate the appraisal was wrong and the FMV was what someone was going to pay for it. Further, even if you did have a loss, it's not deductible.
  3. #3
    tranquility is offline Senior Member
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    If the trust was a revocable (living) trust of the type people usually have, I'd say an arms length sale within six months of death is going to be the step-up basis; not the appraisal. To claim otherwise you'd have to claim some odd facts that don't seem to be here. I disagree with FlyingRon when he says you can't claim the loss as I assume this will not be a vacation home or other personal property since it was sold so soon. I believe it to be a capital asset.
  4. #4
    davew128 is offline Senior Member
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    It would be almost impossible to NOT have a loss when selling inherited real estate that soon based on selling expenses alone. I agree with Tranq that the property in the hands of the children is an investment asset not personal use and a loss would be deductible.
  5. #5
    tranquility is offline Senior Member
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    Just to be clear to the OP, your basis will be the fair market value at the time of the arms length sale and the loss will be because of the costs to sell the property.
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  6. #6
    Borneo Diver is offline Junior Member
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    Quote Originally Posted by tranquility View Post
    Just to be clear to the OP, your basis will be the fair market value at the time of the arms length sale and the loss will be because of the costs to sell the property.
    Thanks for your help. Just to clarify, the cost basis would be the sale price, and the loss would be the difference after selling expenses and commissions? Would this loss be classified as "short term" or "long term"? Dad owned the house for many years, and the trust was a revocable trust.
    Thanks again,
  7. #7
    tranquility is offline Senior Member
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    Quote Originally Posted by Borneo Diver View Post
    Thanks for your help. Just to clarify, the cost basis would be the sale price, and the loss would be the difference after selling expenses and commissions? Would this loss be classified as "short term" or "long term"? Dad owned the house for many years, and the trust was a revocable trust.
    Thanks again,
    Technically, the FMV is the cost basis and the selling expenses (And, other relevant things.) added to that is the adjusted cost basis. The time the trust obtained the property to the time the property was sold is the measure for short term or long. The trust was disregarded when it was revocable and we have the trust being irrevocable being the date the "trust" obtained the property. I'd say short term.
  8. #8
    Borneo Diver is offline Junior Member
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    Quote Originally Posted by tranquility View Post
    Technically, the FMV is the cost basis and the selling expenses (And, other relevant things.) added to that is the adjusted cost basis. The time the trust obtained the property to the time the property was sold is the measure for short term or long. The trust was disregarded when it was revocable and we have the trust being irrevocable being the date the "trust" obtained the property. I'd say short term.
    Great answer. Thank you very much for your help**************..
  9. #9
    davew128 is offline Senior Member
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    Quote Originally Posted by tranquility View Post
    Technically, the FMV is the cost basis and the selling expenses (And, other relevant things.) added to that is the adjusted cost basis. The time the trust obtained the property to the time the property was sold is the measure for short term or long. The trust was disregarded when it was revocable and we have the trust being irrevocable being the date the "trust" obtained the property. I'd say short term.
    I disagree. All inherited property receiving a basis adjustment at death is considered long-term in the hands of the people inheriting it.
  10. #10
    tranquility is offline Senior Member
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    Quote Originally Posted by davew128 View Post
    I disagree. All inherited property receiving a basis adjustment at death is considered long-term in the hands of the people inheriting it.
    I agree. My mistake. I started thinking too much related to the trust.

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