Tax Question

[Tuffcookie]

Just thought I would throw this out there to see if anyone has any knowledge about it. I will certainly consult with a tax expert. But here is the situation. My sister & I sold our late mom's house this last summer. She died in Dec. of 2006. The house was probaby bought for around $20-25,000 in 1955. I kept track of all the repairs & maintenance on the place, from the time she died, up until it sold. It only sold for $97,000. Between what it was bought at and what it sold for, minus any improvements & expenses, it is possible that sis and I won't have any tax liability But, will I have to claim this on my tax return? My youngest DS is in college now and I don't know how this will affect the filling out of his FAFSA forms. I'd hate to see his financial assistance lowered because of this!

TC

 

[bellarella]

Definitely consult with a tax person.

Off the top of my head, I believe there could be tax liability for any appreciation in value between when your mother died and when you sold it.

For FAFSA purposes, it's not the tax liability that counts, it's the assets you have. Whatever percent of the purchase price you get will probably get counted in as money available to contribute to college expenses. You should talk with a financial planner who is familiar with the FAFSA calculation process.

 

[golfgal]

If the house was in your mom's name only when she died (your sister and you were not on the title) you will get what is called a step-up in basis, meaning "your" cost is whatever the house was valued at when your mother died. When you go to sell you use THAT figure to calculate taxes. If the house was valued at $97K when she died and you sold it for that, no tax consequence. If you were listed on the title before she died, unfortunately you have to use HER cost basis (the $20K). This is another good reason WHY people want to consult with an estate planning attorney-even if they have small holdings. The fee for the attorney to set these things up properly is MUCH less than any taxes you would pay. This is a perfect example, in this situation if the daughters were put on the title before mom died they would be paying 48% tax on the costs above and beyond Mom's costs. So even with repairs, say those costs are $50K and they sold for $97K, that is $22,500 in taxes vs $2000 for an estate planning attorney to draft a proper will and trust.

 

[allyphoe]

If you were listed on the title before she died, unfortunately you have to use HER cost basis (the $20K).

Not necessarily true. IRC Sec. 2036(a) provides that a transfer subject to a retained life estate is includable in the decedent's estate, and therefore eligible to a full step-up. Adding a name to the title for convenience and avoidance of probate is a perfect example of that scenario.

Our state recently instituted transfer-on-death deeds, which accomplish the same thing.

 

[Tuffcookie]

Thanks for all this info. Sis & I were on listed on the deed, as survivorship, to avoid probate.

The house sold for less than the appraissal.

I guess we'll let the tax consultant sort this out!

TC

 

[tvguy]

Thanks for all this info. Sis & I were on listed on the deed, as survivorship, to avoid probate.

The house sold for less than the appraissal.

I guess we'll let the tax consultant sort this out!

TC

We had the same situation. House appraised for $10,000 less than we listed it for (which was what the comps listed as current value), and $15,000 less than we sold it for. So we took a $15,000 loss on our taxes. We paid no taxes.