Value of Real Estate

[steffb503]

What is the name of your state (only U.S. law)? NJ
Not sure if this belongs here or not.
Father died in 2011 and left his house to my sister JTWROS. She filed and L-9 claiming his estate was considerably less than it was to avoid taxes. Most f what he had he had jointly with one of his children.
was named Executor for the purpose of a few stocks that needed to be transferred.
The property is now being sold for a lot more than my sister claimed. That will bring the value of the estate over the $675,000.00 threshold.

My question is, is there a penalty for not claiming the correct value on the property or will she just have to pay taxes as if it were income?
Thanks so much
Steff

 

[Ohiogal]

What is the name of your state (only U.S. law)? NJ
Not sure if this belongs here or not.
Father died in 2011 and left his house to my sister JTWROS. She filed and L-9 claiming his estate was considerably less than it was to avoid taxes. Most f what he had he had jointly with one of his children.
was named Executor for the purpose of a few stocks that needed to be transferred.
The property is now being sold for a lot more than my sister claimed. That will bring the value of the estate over the $675,000.00 threshold.

My question is, is there a penalty for not claiming the correct value on the property or will she just have to pay taxes as if it were income?
Thanks so much
Steff

The house became your sister's immediately upon father's death. It was not part of his estate. It was co-owned by her and transferred to her immediately. So why is that any of your business? You have no claim upon the house.

 

[LdiJ]

What is the name of your state (only U.S. law)? NJ
Not sure if this belongs here or not.
Father died in 2011 and left his house to my sister JTWROS. She filed and L-9 claiming his estate was considerably less than it was to avoid taxes. Most f what he had he had jointly with one of his children.
was named Executor for the purpose of a few stocks that needed to be transferred.
The property is now being sold for a lot more than my sister claimed. That will bring the value of the estate over the $675,000.00 threshold.

My question is, is there a penalty for not claiming the correct value on the property or will she just have to pay taxes as if it were income?
Thanks so much
Steff

The taxes are going to be a little bit complicated for your sister. The house wasn't part of the estate as it passed to her outside of the estate (if she included it in the estate she messed up). If your sister has lived in the house for at least two out of the last 5 years her tax consequences will be different than if she did not.

If she did not, then 1/2 of the house is going to have a basis of whatever your father's basis would have been. The other 1/2 of the house will have a basis of whatever valuation was put on the house at the time of his death. Normally that would be a stepped up basis to FMV, but if the house was included in the estate and undervalued, that is going to increase the taxable gain.

Your sister needs to get a tax professional on board, preferably before she sells the house, but certainly before she does anything with the money. There could be a VERY significant amount of tax.

 

[anteater]

We really should be more precise when using the word "estate." The property may not be part of the probate estate. But it (or, at least, 1/2 of its value) would be part of the gross estate for estate/inheritance tax purposes.


I suspect that the NJ Department of Revenue lacks the systems sophistication to flag the low value attributed to the property on the L-9 as compared to the actual sales price. But maybe I don't give them enough credit.


(Anybody want to take bets that the sister will ignore the value on the L-9 when figuring basis for income tax purposes?)

 

[FlyingRon]

The proper valuation must be put on the L-9. Since a child is a class A beneficiary, there's no tax on the transfer from a jtwros deed.

 

[anteater]

The proper valuation must be put on the L-9. Since a child is a class A beneficiary, there's no tax on the transfer from a jtwros deed.

For the Jersey Inheritance Tax... But there is also the Jersey Estate Tax, for which, if I recall correctly, there is only the marital deduction.

 

[steffb503]

No it is not part of the probate Estate but most definitely needed to be included on the L-9 for Estate tax purposes. All jointly held accounts needed to be included at full value, it was his money and property until the moment of death.
As I understood it.

I was just concerned if the taxes incurred were also a part of the estate or hers alone.

 

[curb1]

You said, "....it was his money and property until the moment of death". It was half (or some percentage) "his property at the moment of death". What percentage of the property belonged to sister before death?


Joint Tenancy with Right of Survivorship
The ownership of property for which the co-owners have right of survivorship. In other words, if two or more persons jointly own a property with right of survivorship and one of them dies, the property does not become part of a decedent's estate; rather, the other owner(s) continue to own the property. A married couple may be joint tenants with right of survivorship on their house, for example. Less commonly, two business partners may be joint tenants with right of survivorship on a business property: if two persons own an apartment complex and one of them dies, the whole of the complex belongs to the co-owner, and not the decedent's heirs. It is important to note, however, that the decedent's liabilities may remain attached to the property and the property may be used to pay off creditors, even if the creditor had nothing to do with the property in question.

 

[anteater]

You said, "....it was his money and property until the moment of death". It was half (or some percentage) "his property at the moment of death". What percentage of the property belonged to sister before death?

For estate tax purposes, that is not relevant if the surviving joint tenant did not pony up some "adequate and full consideration" for the survivor's interest in the property.

Generally, you must include the full value of the jointly owned property in the gross estate. However, the full value should not be included if you can show that a part of the property originally belonged to the other tenant or tenants and was never received or acquired by the other tenant or tenants from the decedent for less than adequate and full consideration in money or money’s worth, or unless you can show that any part of the property was acquired with consideration originally belonging to the surviving joint tenant or tenants. In this case, you may exclude from the value of the property an amount proportionate to the consideration furnished by the other tenant or tenants.

If it was JTWROS, then sister's interest was 1/2.

 

[Kayln]

Value of Real estate:-
1) Sales Comparison Approach: The sales comparison approach (SCA) is one of the most recognizable forms of valuing residential real estate.
This approach is simply a comparison of similar homes that have sold or rented over a given time period.
The SCA relies on attributes to assign a relative price value.
2) Capital Asset Pricing Model:-The capital asset pricing model (CAPM) is a more comprehensive valuation tool for real estate.
The CAPM introduces the concepts of risk and opportunity cost as it applies to real estate investing.
3) Income Approach:-The income approach focuses on what the potential income for rental property yields relative to initial investment.
The income approach is used frequently for commercial real estate investing.The
income approach relies on determining the annual capitalization rate for an investment.
4) Cost Approach:-The cost approach to valuing real estate states that property is really only worth what it can reasonably be used for.
It is estimated by summing the land value and the depreciated value of any improvements.
5) The Bottom Line:-Real estate investing isn't out of vogue by any stretch of the imagination.
Most serious investors will look at components from all of these valuation methods before making a rental decision.