Real Estate And IRS Question

14 years ago

Hi to all,

I will try to break this down so it will be easier to understand.

We inherited a house which we sold in July of 2009.

There are no inheritance taxes in the state where I live.

Had the house Appraised after mothers death so the Basis would be

House worth: $72,500.00 at time of death June 2008.

House sold for: $65,000.00 in July 2009.

Realtor received her fee:

Paid $3,000.00 in closing costs

Title company received their fee

My understanding is that we can claim a loss on the inherited property (not our primary residence)

I also was told that we can deduct the Realtor Fee, the closing costs and the Title Company's fee and take the loss from the house. Is this so?

Would this fall under Capital Gains/Loss?

Has anyone ever used TurboTax and if so which one would I use? I purchased the Premier one. I have always done our taxes but with this sale of property it is new to me and I thought maybe TurboTax might be the way to go. What do you think?

Thank you so much for your help it is greatly appreciated.

thirdfrt!!!

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Comments (7)

sushipup1
14 years ago
I do not think that you can take a loss on the property, unless it was income producing, and perhaps not even then.

And all costs related to selling and closing the sale will be deducted from the proceeds. As for taxable income, I don't think you will have any.

I seriously suggest that you discuss this matter with a tax professional. Or at least spend a lot of quality time with IRS's Publication 17, available online.
thirdfrt
Original Author
14 years ago
I seriously suggest that you discuss this matter with a tax professional.

Thank You.

thirdfrt!!!
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Yes, I know that. House A is our primary residence--that's essential so we can get the tax deduction when we sell that. C isn't an investment property--so I don't know if that advice would work for us. It's a little complicated. Our 18% share is because we refused to take money from MIL's assets when we had huge legal fees when other relatives were stealing from her. We were legally entitled to be repaid for bringing the matter to the court's attention, but as the outlaws had already stolen a quarter of a mil from her, we weren't comfortable taking even a penny of the little she had left for her end care (she had Alzheimer's). The lawyers (ours, MIL's financial guardian, and the out-laws' lawyer) and came up with the solution that they'd put a percentage of the house in our name which we'd get after she died. She did (outlaws never even told us, so we missed the funeral, but that's another post, GRRR). So, long story short--I'm not exactly sure how you would classify that bit of property--we've owned it on paper for a few years, but haven't had use of it, nor income--but we also haven't had any expenses for it's upkeep, either. So it's all a little complicated. Only thing I know, is that we really couldn't afford the money we put out at the time--but we felt we couldn't afford NOT to either, and now my sweet MIL is at peace, and we will finally recoup what we spent to protect her from a bunch of folks who professed to love her with their mouths, while they were shoving their hands into her pockets. But I do appreciate the suggestion and will bring it up when I get to sit down with my accountant. I was sort of thinking that I might want to invest in some sort of property eventually, once we've liquidated all this extra real estate we've found ourselves holding at the moment.
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Just about the only thing that makes that happen is a very good and recent sale in the "neighborhood" of a house comparable to the one being appraised. Sometimes you'll have a buyer come in with cash (as from an inheritance or divorce settlement) who doesn't bother to get an appraisal. That sale can set a new high---although it is usually used as a fourth comparable since that doesn't represent the "typical" buyer. Strictly defined, a "neighborhood" is the either in the same subdivision or within one mile of the subject. Ideally the sale should have occurred within the previous six months. However, in rapidly changing market conditions some lenders ask for comps within three months. There are all kinds of exceptions to this guidline; for example, when you are in a subdivision that covers several miles and the only comps are within the s/d but beyond a mile. And a comp in the same s/d is better even if it is a mile or two away than a house just outside the s/d boundaries that is only a half-mile away. Things like s/d amenities that would attach to the subject but not the comp "outside the gates" so to speak, even if those gates are only metaphorical. When you have semi-rural properties or areas with no subdivisions it is permissible to go further away and farther back in time for comparable sales. It's very possible that someone bought a house a few miles from you that was in some way very like your house---and bought it within a few months of your own purchase. It's all about group behavior and not individual actions... you look at trends in sales and what other people have bought recently in the same area, try to find sales that match your subject best. When you have no subdivision, or you're in a rural area or dealing with unique properties, often the most difficult task is to identify the most important feature of a home---the number of bedrooms? the tennis court? the five-car garage? the finished basement media room? That's why Realtors are such wonderful resources for appraisers---if they will use their knowledge. They know what is selling houses in their area. Sometimes it is a school district---I've seen people pay $300K for a two-two in a highly desirable elementary school district. That's what makes the business interesting, there is something different with every assignment.
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Lukki, I surely understand what you are saying - and I don't get any of this either. What I have to do right now is believe my son. I am thinking he may be misinformed, but I don't believe he is lying to us. I am still thinking that when I sign the title over, it will have both of their names on it. I do not know what I will do then. My sister is also on the title; I cannot even imagine her reaction. She does not know what has transpired over the last two weeks. I do not know what her parents are thinking either. They are on the other side of the country and I have met them twice. Our offer of money was way before theirs, so it would seem to me that they might have contacted us?? They know at the moment this is my house. If I were them, I wouldn't be putting a penny in. Kswl, this is not a new situation. When he first offered to buy the house, my sister and I sat down with both of them and explained the terms of the sale, which were basically the price and title. No other strings were attached. So she knew the terms from day 1. But you are right, no outcome will satisfy all parties. The whole situation is horrible. I have tried and tried - we all have, and when any one of us wants to give up on her, I say try harder. We have all bit our tongues and tried to keep the peace. My son defends her every move - and can explain away any of her antics, FB postings, etc. She is both the antagonizer and the victim. I think he feels the need to take care of her. But at this point, at least we see our son, not as much as we would like, but we do. He is the youngest and we always seemed to have the closest relationship with him. Unfortunately, not anymore and there is nothing we can do about it. I don't know what I will do if both names are on the title when I have to sign. I just don't know, but I do know that whatever happens, this nightmare will be over by June 1st. Thanks to all of you for your support! Great day to all!!
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I mean can you take another offer a day before we close??? the day we close?? Like at what point do you have to mark the home pending??? There is a buying a home section here and you might want to post there. There are specific real estate laws that I am not familiar with, even as I am familiar with general contract law. First, most contingency sales have a method for you to remove the contingency, so technically they can't take another offer at all. They can just get an offer and demand that you remove the contingency. This is the kick-out clause. Removing the contingency is your choice rather than theirs. They can make the demand that you remove the contingency or they will void the contract. However, this is a real mess and I would suggest you go over their agent's head if that is an option. Generally, if you sign a contract then you must abide by the terms you agreed to. At this point I suspect that you can block any offer they take. They are in breach of the contract and they can't get enriched by that breach. If you wanted to push the thing in court you could let them take another offer, then get an injunction on their closing until a hearing. Of course, you wouldn't want to spend too much money working on that, but at that point they become liable to both parties that signed a contract with them and they get a headache like they couldn't possibly imagine. For a few hundred bucks you can prevent them selling for months just waiting on a hearing that you drop 15 minutes before court.
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kudzu9
14 years ago
I agree. Consult a professional. But I do not think you can take a loss on this. I don't believe the appraisal has any bearing. Essentially you got this house for free and sold it for $65,000, less some expenses. Now, while you can deduct most or all of those expenses as an adjustment to the selling price, that is the only "loss" I think you can claim.
sushipup1
14 years ago
You inherit real estate at the value as of the date of death of the owner. A stepped-up basis. If the person signed over the house to you before death, then yes, you would get it at a zero-cost basis (plus the original owner would owe gift tax). Still can't take a loss, unless it was income property (I think). (I am not a CPA nor do I play one on TV....)
partst
14 years ago
Good question I donÂt know the answer but I do know you would have had to pay capital gains if you would have sold the house for more than the appraised value. See a professional and come back and let us know the answer.
User
14 years ago
Thirdfrt,
Just for your information,
The basic inheritance, is the cost mom paid for it and the money you received for the house, the difference is technically your capital gain, minus all fees to sell it.
Ex- mom paid 5,000.00 you sold for 100,000 and had 6,000 in fees to sell the home.
Technically, you made 89,000.00 on the property.
I would consult a tax professional for read up online at the irs website on inheritance and capital gain.
I don't think you would pay any capital gain on the house only because it was an inheritance and depending on the amount of money, which is small, you probably don't have any tax on it.
You can't claim a loss on a situation where you can't prove you actually lost money by selling the property, which you didn't, because you didn't pay for the property and it has accumulated some value since your mom bought it.
sushipup1
14 years ago
Here's some info on step-up valuation of inherited property. Note that the rules change for 2010 only.

The paragraph is about three or four down the page.

Here is a link that might be useful: Inherited property step up valuation

Real Estate And IRS Question

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Real Estate And IRS Question

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