Real estate basis for income tax purposes

I

irvinetalker

New member
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
 
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
 
If she sold it for $64k in 2017, 25K in 1999 is very possible IMHo. Or did you mean $640K?

Siince the property was a transfer from your grandmother to your mother, the cost basis should be the same as your grandmothers, imnpo.  So the tax baisis is actually probably too high since it has 20 years of 2% increases on it.
 
nosuchreality said:
If she sold it for $64k in 2017, 25K in 1999 is very possible IMHo. Or did you mean $640K?

Siince the property was a transfer from your grandmother to your mother, the cost basis should be the same as your grandmothers, imnpo.  So the tax baisis is actually probably too high since it has 20 years of 2% increases on it.
Click to expand...

It was $64,000 in 2017. This is in a small Central Valley community where homes are often under $100K. Her mom and dad purchased the house for $8,500 in 1959 under a grant deed to husband & wife as joint tenants. Her dad passed away in 1972, and from then to 1999 it was her mom's house. So maybe that plus the prop 13 limits explains the $25K-ish property tax value.

So I suppose my mom ought to bring all the deeds to the accountant. You think a realtor might be able to provide some comps from 1999, or would comps not be helpful? From 1959 until 2017 there were no appraisals on the property, but other homes in that neighborhood were bought and sold during that time.
 
Perspective said:
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
Click to expand...

She has not resided in the house since the 1970s; her youngest child was living there recently if that counts for anything.

She and her husband are both retired; their income is strictly Social Security. You think with the lower income levels that the basis is going to be moot? Or perhaps something small enough that she can just pick a number and not worry about being audited later?
 
irvinetalker said:
Perspective said:
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
Click to expand...

She has not resided in the house since the 1970s; her youngest child was living there recently if that counts for anything.

She and her husband are both retired; their income is strictly Social Security. You think with the lower income levels that the basis is going to be moot? Or perhaps something small enough that she can just pick a number and not worry about being audited later?
Click to expand...

If their 2017 Taxable Income was well below $75,900, and the capital gain from the sale of this house in 2017 is so small that when added to their Social Security income doesn't exceed $76K, then the long term cap gains tax rate is 0%. The cap gains tax rate will be 15%, if the gain from the sale pushed their 2017 Taxable Income above $76K.
 
Perspective said:
irvinetalker said:
Perspective said:
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
Click to expand...

She has not resided in the house since the 1970s; her youngest child was living there recently if that counts for anything.

She and her husband are both retired; their income is strictly Social Security. You think with the lower income levels that the basis is going to be moot? Or perhaps something small enough that she can just pick a number and not worry about being audited later?
Click to expand...

If their 2017 Taxable Income was well below $75,900, and the capital gain from the sale of this house in 2017 is so small that when added to their Social Security income doesn't exceed $76K, then the long term cap gains tax rate is 0%. The cap gains tax rate will be 15%, if the gain from the sale pushed their 2017 Taxable Income above $76K.
Click to expand...

That's exactly what ended up happening. My mom looked up some old listings from 1999 to estimate a price-per-square-foot, found a new accountant, and long story short found that her capital gain was not enough to have to pay any taxes. I think they ended up putting the 1999 basis at 50 or 60-something thousand, and there may have been some depreciation, but in the end it was not enough of a gain to leave taxes due.
 
irvinetalker said:
Perspective said:
irvinetalker said:
Perspective said:
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
Click to expand...

She has not resided in the house since the 1970s; her youngest child was living there recently if that counts for anything.

She and her husband are both retired; their income is strictly Social Security. You think with the lower income levels that the basis is going to be moot? Or perhaps something small enough that she can just pick a number and not worry about being audited later?
Click to expand...

If their 2017 Taxable Income was well below $75,900, and the capital gain from the sale of this house in 2017 is so small that when added to their Social Security income doesn't exceed $76K, then the long term cap gains tax rate is 0%. The cap gains tax rate will be 15%, if the gain from the sale pushed their 2017 Taxable Income above $76K.
Click to expand...

That's exactly what ended up happening. My mom looked up some old listings from 1999 to estimate a price-per-square-foot, found a new accountant, and long story short found that her capital gain was not enough to have to pay any taxes. I think they ended up putting the 1999 basis at 50 or 60-something thousand, and there may have been some depreciation, but in the end it was not enough of a gain to leave taxes due.
Click to expand...

If you want more documentation, shouldn't the house have a stated value when she inherited it so she would know how much inheritance tax she owed? Maybe the value is on a tax form???
 
Ready2Downsize said:
irvinetalker said:
Perspective said:
irvinetalker said:
Perspective said:
irvinetalker said:
My mom received a house from her mom in 1999; there was a grant deed with her mom reserving a life estate in the property, which if I recall was just a couple of weeks. For the next several years the house was at different times vacant or occupied by one of my mom's children. My mom never formally rented it out during this time. In 2017 she sold the house. Now it's tax time and she is trying to find some documentation that could help to establish her basis in the house for tax purposes. The accountant helping her with the 2017 transaction and who was going to do her taxes just had a heart attack and is in the hospital unlikely to recover, and my mom is at a loss as to what her accountant had in mind. How in 2018 can she come up with a basis for that property she inherited 19 years ago? Assuming she finds a new accountant, what kinds of documents can she bring in to the new accountant to help sort out the tax situation?

Her county had the property down at $25K-ish for property tax purposes (this is not Orange County, but another county in California), but that's sounds way too low. She sold it for $64K in 2017, and there's no way it was only worth $25K in 1999. If anything it was worth more than $64K in 1999. Her best guess is it was maybe around $100K at that time, but how would you support that?
Click to expand...

Sounds like a law school hypothetical. A CPA or tax attorney probably needs to reverse engineer the value of the house at transfer (1999). However, is the basis moot? Did she reside in the house two of the last five years? Is her income extremely low? We're talking about such small amounts that the tax consequences aren't very consequential.
Click to expand...

She has not resided in the house since the 1970s; her youngest child was living there recently if that counts for anything.

She and her husband are both retired; their income is strictly Social Security. You think with the lower income levels that the basis is going to be moot? Or perhaps something small enough that she can just pick a number and not worry about being audited later?
Click to expand...

If their 2017 Taxable Income was well below $75,900, and the capital gain from the sale of this house in 2017 is so small that when added to their Social Security income doesn't exceed $76K, then the long term cap gains tax rate is 0%. The cap gains tax rate will be 15%, if the gain from the sale pushed their 2017 Taxable Income above $76K.
Click to expand...

That's exactly what ended up happening. My mom looked up some old listings from 1999 to estimate a price-per-square-foot, found a new accountant, and long story short found that her capital gain was not enough to have to pay any taxes. I think they ended up putting the 1999 basis at 50 or 60-something thousand, and there may have been some depreciation, but in the end it was not enough of a gain to leave taxes due.
Click to expand...

If you want more documentation, shouldn't the house have a stated value when she inherited it so she would know how much inheritance tax she owed? Maybe the value is on a tax form???
Click to expand...

You would think so, but as far as anyone knows there was no documentation on the fair market value of the house at the time of the 1999 grant deed.
 
You must log in or register to reply here.
Back
Top