sale of inherited property ?

Rateye · #1 (**permalink**) 03-25-2010, 06:15 PM

I'm new, so Hello.
Dad died in 1999 and had assets in family trust, including house. all inherited property between myself and two sisters. Provision that oldest sister to live in house as long as she wanted. She moved out in 2009 and property sold.

Now cost basis of house on day dad died ( tax record) of $145,000. House sold in 2009 for $190,000. Now since it was no tax issue account of inheritence being under 3 million? the taxes owed would be $45,000 divided by 3. ( 190,000 - 145,000 = 45,000) So my share of taxes would be 1/3 of the difference between what it was valued at in 1999 at time of dad's death and the time we sold it 2009 ( 1/3 of 45,000) ( right ?). Now that's pretty simple on schedule D.

Now here's where I get confused, in the legal papers there's a brokerage fee of $9,500, expenses of $200. for required smoke alarms, a fee to lawyer of $750. and a settlement charge to seller of $1,102.

So are any of these charges deductable ? Am I entitled to take 1/3 of these off and if so where do I show it, what form??? Is this also considered a long term capital gain

Any help appreciated------YPR ( Your Pal Rateye )

TaxGuru · #2 (**permalink**) 03-26-2010, 08:55 AM

Well, you are correct, the gain on the sale of the property would be computed as follows;

Gain = Adjusted Selling Price Less Adjusted Cost Basis

Adjusted Selling Price = Sale Price Less Selling Expenses/Fix up Expenses(Brokerage Fee+ Lawyer Fees+Settlement Costs + Fixing up Expenses)

Adjusted Cost Basis = Original Cost or Valuation at date of transfer of the Property plus Improvements made on the inherited property.

Improvements = New Improvements made to the Property, Extension Costs, Basements, or Repair made to the Property.

Hope that helps you. Your tax program may only have 2 input areas to reflect this transaction, one for Sale Price and the other for the Cost Basis. In this case, include the Adjusted Selling Price in the Sale Price input, and for the Cost Basis use the value you have derived for Adjusted Cost Basis!

Rateye · #3 (**permalink**) 03-26-2010, 12:54 PM

Thanks that helps alot,at least I know where I stand. But a Tax program,just because I am using a computer doesn't mean I use a tax program, I'm old school, paper and pencil here.
So right now I am bogged down on publication 523 page 28.It talks about "transfer fees" a very short paragraph. However which fees can be used to adjust the selling price down. I have statements from lawyers, housing and urban developement, lawyer fees, stamps, real estate commissions yadda yadda yadda. Now on schedule D it's pretty clear. But is there a form or worksheet that has to be included to show how you adjusted the selling price down because the 1099-s sent to govt will show a different figure--------the 1099-s does not show the reduction for transfer taxes. What would I need to send them to document the transfer fees and justify the adfjusted selling price and avoid an audit?-----Rateye

Rateye · #4 (**permalink**) 03-26-2010, 04:15 PM

ok I made some head way here. I live in Texas but the property was sold in Massachusetts. I don't think that's an issue unless I may owe some capital gains in Mass State tax

Evidently when you sell a house ,at least in Mass, you get a settlement statement from the US Department of Housing and Urban Developement ( form OMB 2502-0265 ) lines 500 thru 507 list all the fees incurred by seller in selling the property.I will use these to reduce the selling price and get the adjusted selling price to figure my capital gain. Now all I have to do is find a work sheet or something so that Uncle Sugar see I documented it. I mulled over that USDH document hours before I figured out the page was divided in half, one half ( left side) for buyer and right side for seller. Now I got good solid figures--just gotta figure out how to adjust selling price properly and figure the capital gain

Rateye · #5 (**permalink**) 03-30-2010, 01:44 AM

OK success, it was in the worksheets at the end of publication 523. There are two ways if you follow the work sheets directions (1) inherited or (2) property owned jointly--I did the inherited.What threw me off was the commissions , stamps and lawyers fees. On worksheet 1 it shows lines 4 a thru g. I thought these were my deduction/adjustments ie my adjustments to selling price,well they ain't not in my case. I mean I have commissions and legal fees I can take off,they just don't go on worksheet 1 --they figure in on worksheet #2 !!!!

So worksheet 1 tells me to put the fair market value (cost basis) the property evaluation from the city the day dad died in 1999 on line 5 the instruction for inherited property tell you to skip lines1 thru 4,I did and put the price on line 5.lines 6 thru 12 were all zero ,none of those lines figured in in my case---- then I went to worksheet 2

Worksheet 2 line one asks for the selling price of the home on line 1. The line 2 asks for the selling expenses, commission and fees. Line 3 tells you to subtract the line 2 from line 1 ( those are the fees I knew I could subtract--and here is where you subtract them). They come off the selling price.and that gives you the amount realized on the sale line 3.----- I'm not done yet !!!
Now you go to line 4 on worksheet 2 and you put in the amount from worksheet 1 line 13. That's the amount the cost basis from 1999. Now line 5 tells you to subtract line 4 from line 3---and viola that's the long term capital gain I made from 1999 to 2009 .These figures now have to be shown on Schedule D part II long term capital gain and on line 15, then you go to schedule D part III and figure your capital gains tax on this money and put it on 1040

Now I didn't qualify for any exclusions because I didn't meet the use test, I only met the ownership test ( worksheet 2 part 2). So I have my ducks in order, I have my documentation and I've done the math. I will probably send in the documentation of the cost basis and fees and a copy of the 1099-s they should already have.
In my case remember the property in question is being split 3 ways, I'm only responsible for 1/3 of it but whether your situation is similar to mine or if you have the whole amount to yourself--the answers are in the worksheet at the end of pub 523, helps if you have acrobat reader installed because you can print out the worksheet pages and not the whole stinkin publication.

I got some real bad advice on this from so called tax experts. I was told I must fill out a 1040NR ( I looked it up it was for non-resident aliens) I was told to use the form for the sale of buisness property ( more B.S ) it wasn't buisness property. 1-800-829-1040, IRS help?? The phones were bad you couldn't understand the agent,4 times I called, the problem exists today,the conversation breaks up. All I wanted to do was figure the capital gain and deduct or adjust for the commissions and what forms and where to put them and any additional documentation needed--well I did

I see I have had about 126 hits on this subject, if this has helpedletme know, If you see a problem with my method--let me know----Rateye

Rateye · #6 (**permalink**) 04-14-2010, 10:51 AM

all this time I was trying to find out how to make the gain eligable for the capital gains tax------as of now all I can see from the sale is that it's taxed as normal income. I get this from Pub 17 page 108 "more than one home"--it's not my main home.........so I guess capital gain tax rate is out the window

josehill · #7 (**permalink**) 05-23-2013, 02:44 AM

Quote:

Originally Posted by TaxGuru

Well, you are correct, the gain on the sale of the property would be computed as follows;

Gain = Adjusted Selling Price Less Adjusted Cost Basis

Adjusted Selling Price = Sale Price Less Selling Expenses/Fix up Expenses(Brokerage Fee+ Lawyer Fees+Settlement Costs + Fixing up Expenses)

Adjusted Cost Basis = Original Cost or Valuation at date of transfer of the Property plus Improvements made on the inherited property.

Improvements = New Improvements made to the Property, Extension Costs, Basements, or Repair made to the Property.

Hope that helps you. Your tax program may only have 2 input areas to reflect this transaction, one for Sale Price and the other for the Cost Basis. In this case, include the Adjusted Selling Price in the Sale Price input, and for the Cost Basis use the value you have derived for Adjusted Cost Basis!

The IRS has imposed different rules upon the brokerages in real estate. Hire your own lawyer will help you to draft all documents and ensure that your interests are being represented at every step of the process. He will guide you on tax deduction in brokerages. You can visit The Law Offices of Allen A. Kolber, Esq. at 134 Route 59 Suite A, Suffern for complete real estate legal solution or call 845-918-1277.

Admanmite · #8 (**permalink**) 09-25-2013, 05:14 AM

Hire your lawyer will help you draft most documents and keep your interests are increasingly being represented from every step in the process. He's going to guide an individual on levy deduction with brokerages.