Inherited Property Cap Gains Upon Selling

[Desert702]

What is the name of your state? Nevada

My wife and I inherited two condos from my mother when she passed in 2018 by way of probate. We have kept them as rentals and now want to sell one and and place the other in a Family Trust which has yet to be created. Both properties are unencumbered and titled in our names.

The sum total of all documentation that we have for Mom is a death certificate. My concern is that when we file our Federal Tax Return and show this inherited property with our capitol gains profit, we will not have sufficient documentation. If we create a trust we may need more information as well.
Our Real Estate Lady has provided comps of like properties for us to use in determining the value at the time of inheritance, and she will provide a letter to include with our tax return explaining her method of determining the values.

I have three questions regarding this situation. What docs will be required for the Cap Gains form? Are the required documents the same if a property is moved into a trust? Is an average of five "like" properties selling price an acceptable method to determine value?

Thanks for any help.....

 

[Taxing Matters]

What is the name of your state? Nevada
I have three questions regarding this situation. What docs will be required for the Cap Gains form? Are the required documents the same if a property is moved into a trust? Is an average of five "like" properties selling price an acceptable method to determine value?

You don't attach your appraisal or other method of determining the date of death value to the tax return. You provide that to the IRS should it ask for it after you file the return. The best documentation is an appraisal done close in time to the date of death by a person qualified to do it. I've not seen what you have so I can't tell you how likely it is that the IRS would accept it in an audit. I suggest you get the help of a good tax professional when preparing your return to get it right. The fee you pay for that will be tiny compared to the tax hit you may take if you get it wrong. I also suggest that at the time you consult an attorney about drafting that trust you also see a tax professional about the tax effects of that trust. The details of that trust will matter, and of course I've not seen it.

 

[FlyingRon]

TM was right, as usual. You should have either sold the properties within months of the person's death or gotten a proper appraisal at the time. What you want to look at now is a "forensic appraisal" that will compute the actual value for your future capital gains issues. Issues involving rental properties (even without being complicated by estate issues) makes my head swim which is why I have a professional handle those computations. Note that it's not just the VALUE of the property that is involved. Since it was a rental you must depreciate that and recapture that at the sale time (even if you failed to take the deduction).

 

[Desert702]

Thank You both for your input.

 

[LdiJ]

What is the name of your state? Nevada

My wife and I inherited two condos from my mother when she passed in 2018 by way of probate. We have kept them as rentals and now want to sell one and and place the other in a Family Trust which has yet to be created. Both properties are unencumbered and titled in our names.

The sum total of all documentation that we have for Mom is a death certificate. My concern is that when we file our Federal Tax Return and show this inherited property with our capitol gains profit, we will not have sufficient documentation. If we create a trust we may need more information as well.
Our Real Estate Lady has provided comps of like properties for us to use in determining the value at the time of inheritance, and she will provide a letter to include with our tax return explaining her method of determining the values.

I have three questions regarding this situation. What docs will be required for the Cap Gains form? Are the required documents the same if a property is moved into a trust? Is an average of five "like" properties selling price an acceptable method to determine value?

Thanks for any help.....

If you had to probate her will in order to get the condos into your name, they should have been valued as part of the probate process. You might want to check the paperwork from that to see if they were valued there. If they were, that is the value you should use to determine any capital gain. If you are putting one of the properties into a trust, you don't necessarily have to worry about valuing that property. However, if somehow they were not valued as part of the probate process, then an average of five like properties would certainly be reasonable.

 

[Desert702]

Thanks for that LdiJ. In fact the properties were both valued for probate using Zillow's value estimates for each, so I will look over the probate docs to see if I can locate them.

 

[zddoodah]

My wife and I inherited two condos from my mother when she passed in 2018 by way of probate. ...

The sum total of all documentation that we have for Mom is a death certificate.

That's impossible. If title to these properties passed to you "by way of probate," then there must be some documentation relating to the probate process, including the deed by which the executor/administrator of her estate passed title from your mother's estate to you. In fact, in your follow up post #6, you made reference to "the probate docs," so how can "[t]he sum total of all documentation that [you] have for Mom [be] a death certificate"?

My concern is that when we file our Federal Tax Return and show this inherited property with our capitol gains profit, we will not have sufficient documentation.

Sufficient documentation for what purpose?

If we create a trust we may need more information as well.

What sort of information, and why do you think you will need it?

Our Real Estate Lady has provided comps of like properties for us to use in determining the value at the time of inheritance, and she will provide a letter to include with our tax return explaining her method of determining the values.

Why do you think you would include a letter from a "[r]eal [e]state [l]ady" with your tax return?

Are the required documents the same if a property is moved into a trust?

In order to create a trust and title the property in the trust, all you'll need is to prepare (or have a lawyer prepare) the trust instrument and the deed that you and your wife will sign.

Is an average of five "like" properties selling price an acceptable method to determine value?

For what purpose?

I strongly suggest you confer with a local trust attorney.