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Basis of inherited house

preparer227
Level 1

Taxpayer and 4 other siblings inherited a house with FVM 62000 in 2016 and was put in estate. In 2016 taxpayer paid estate 20000 for house.     They did major improvements and sold house for 79900 in 2020.    My mind can’t take this.   Does this sound right

 

house FMV at time of death.  62000.  Their was 5 heirs named in the estate.  

Basis for each heir 12400.

taxpayer then paid 20000 to estate 

Taxpayers basis $32400. .?????????

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5 Replies 5
PATAX
Level 9

I believe in a normal situation capitalized major improvements increase the basis...

TaxGuyBill
Level 14

@preparer227 wrote:

Taxpayer and 4 other siblings inherited a house with FVM 62000 in 2016 and was put in estate. In 2016 taxpayer paid estate 20000 for house.   


Is the taxpayer 1/5 beneficiary of the estate?  If so, the $20,000 he paid to the estate, he gets $4,000 right back.  So it would seem logical to me, he is actually only paying $16,000.

But let's take a step back.  Are you SURE he only paid $16,000 for 4/5th of a $62,000 house?  From the other siblings' viewpoint, that doesn't seem logical at all.

As was pointed out, the cost of the improvements would be added to Basis.

BobKamman
Level 13

If his siblings had decided just to give him the house, his basis would be the $62K FMV (presuming you meant this as date of death, so it was their basis).

The fact they got some money back from him, making it only a partial gift, is not relevant.  

His basis is $62K plus improvements he paid for himself.  

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acuny
Level 2

FMV of estate (comprised of house) is 62000 (initial basis), share of each sibling (including TP) is 12400.

Option 1: TP paid 20000 (5000 each to other siblings to buy the house outright?). Therefore, total basis is 12400 + 20000 = 32400 (plus corrections). TP's gain is 79900 - 32400 (or corrected basis) = 47500.

Option 2: TP invests 20000 into the estate, increasing his share to 39.51% (other siblings now have 15.12% share each), and TP's basis is still 32400. TP share of sale is 31570, so TP's loss is ($830) = 31570-32400 (or corrected basis). Siblings each have loss of ($318) = 12082 - 12400 (or corrected basis).

Of course, I could be completely wrong. LOL Hope this helps - somebody let me know if you see it differently. Thanks.

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qbteachmt
Level 15

"5000 each to other siblings to buy the house outright?"

But the house belonged in the estate, as the Whole. You have the $4k each; not $5k. He didn't buy the house from each of them, one at a time.

That's the difference between the house going into an estate, and the house being owned outright by 5 people and one will buy out the other 4.

"TP invests 20000 into the estate"

I doubt they had him/her improve the property until the estate no longer owned it; and the money (an asset) would have removed the house (an asset) from the estate. That's why people are confused over the selling of a $62k FMV for $20k.

"TP share of sale is 31570"

You cannot tell from the data here that there was any loss, because no one here has the improvement invested value in the consideration of the details.

It seems you need to confirm who is the owner of this property at each stage of the process. Either it is part of the estate or someone owned it outright.

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