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Posted by Joe Williams on January 16, 2007, 3:15 am
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Ten years ago, I inherited a vacant lot. I sold it this
year and now I have to figure the basis for calculating my
gain or loss. I know that the basis is the full market
value at the time of death, but how do I determine this?
Would it be sufficient to look at the assessed evaluation
that the county used for tax purposes in the year of death
and the preceding year, then use whichever is lowest?
I want to make this simple. The gain or loss is going to be
close to zero, so I don't want to spend a lot of time
digging up the estate tax return (wouldn't know where to
begin looking), or digging up sale prices of similar lots
from ten years ago.
If I can use the county's assessed evaluation, should I use
the earlier one, the later one, the lower one, or a prorated
value in between?
Thanks.
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Posted by Shyster1040 on January 16, 2007, 7:21 pm
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Using the county assessors records is unlikely to be
acceptable; the values may not bear any relation to fair
market value (often, assessed value is merely a proxy for
fair market value, and the only requirement is that the
assessed value of every property bear the same ratio to true
fair market value; e.g., if Blackacre is FMV $100 and
Whiteacre is FMV $200, there is generally no issue from a
state property tax perspective if Blackacre is assessed at
$32 and Whiteacre at $64 - in either case, the assessed
value bears the same ratio to FMV, and any property tax
assessed as a percentage of assessed value will thus bear
the same ratio to true FMV).
You will have to either dig up the estate return, or else
have a post-hoc appraisal done based on the selling records
of similarly situated properties.
Unless you do the foregoing, you are very likely to face the
situation where the IRS asserts that you owe tax on the
entire sales proceeds because you cannot prove what your
basis was. The IRS will, generally, be supported in this
matter as the courts generally hold that the taxpayer has
the burden of proving his basis, and the IRS may assert that
basis is $0 in the absence of any proof.
Alternatively, you could ask the IRS for advice on how to
handle the matter; they're not ogres and they very well may
have a rule of thumb or an alternate valuation method you
can use.
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Mark Bole on January 19, 2007, 8:25 pm
Please log in for more thread options Shyster1040 wrote:
> Joe Williams wrote:
>> Ten years ago, I inherited a vacant lot. I sold it this
>> year and now I have to figure the basis for calculating my
>> gain or loss. I know that the basis is the full market
>> value at the time of death, but how do I determine this?
[...]
> Unless you do the foregoing, you are very likely to face the
> situation where the IRS asserts that you owe tax on the
> entire sales proceeds because you cannot prove what your
> basis was. The IRS will, generally, be supported in this
> matter as the courts generally hold that the taxpayer has
> the burden of proving his basis, and the IRS may assert that
> basis is $0 in the absence of any proof.
Rather than go all the way to zero, couldn't the heir at
least use the deceased's basis as a floor amount in lieu of
knowing the FMV at time of death? That figure might be
easier to determine exactly from documents already in hand.
It's clear that unless you can use an actual cost, and with
inherited property you cannot, then you are supposed to
attach a statement to Sched D to explain how you figured the
basis. I wonder whether a statement such as the following
is likely to pass muster: "According to the Daily Bugle
business section on April 1st, 2006, average annual
residential real estate appreciation in the north end of
town was 11% for the last ten years. Applying 11% annual
increase to sales price and working back in time ten years
to date of inheritance, estimated FMV in 1996 was umpteen
thousand dollars."
-Mark Bole
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Seth Breidbart on January 21, 2007, 4:18 pm
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> Rather than go all the way to zero, couldn't the heir at
> least use the deceased's basis as a floor amount in lieu of
> knowing the FMV at time of death? That figure might be
> easier to determine exactly from documents already in hand.
No, the property might have been worth less than that at the
time of death.
Seth
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Shyster1040 on January 23, 2007, 2:04 am
Please log in for more thread options > Rather than go all the way to zero, couldn't the heir at
> least use the deceased's basis as a floor amount in lieu of
> knowing the FMV at time of death? That figure might be
> easier to determine exactly from documents already in hand.
Not really because there's no way to prove that the fair
market value of the property hasn't declined below the
donor's cost basis as of the time of death.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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