Gain on Sale of Inherited Home

[jimnjana]

DW inherited 1/2 interest in her fathers home in January, her sister the other half. The property tax value of the home was 185K, we had a market analysis completed by a real estate agent and the CMA was 150k. We sold her portion to her sister for 70K. We really don't want to report a loss, but I think we could but not sure since we sold to a related party. any ideas?

 

[Texas Proud]

You might be able to use the property value as the basis.... but not if you got the market value around the time of his death...


I would take the loss on my return... you sold it and you have a loss... sister now has that as her tax basis...

 

[Animorph]

I have no particular expertise here, so you get what you paid for. As far as I know you don't have to report a loss. I would have preferred a formal appraisal over a real estate agent. That would seem to have better credibility with the IRS. You also need to be careful of the gift tax. What you did was gift her sister $10k to my mind. That's below the allowed consequence-free annual exclusion, so no tax problem and no gain or loss. If the CMA is valid. If the $185k is valid, you might have a gift tax event to document. I think that would be your worst case.

 

[Texas Proud]

I have no particular expertise here, so you get what you paid for. As far as I know you don't have to report a loss. I would have preferred a formal appraisal over a real estate agent. That would seem to have better credibility with the IRS. You also need to be careful of the gift tax. What you did was gift her sister $10k to my mind. That's below the allowed consequence-free annual exclusion, so no tax problem and no gain or loss. If the CMA is valid. If the $185k is valid, you might have a gift tax event to document. I think that would be your worst case.

Just an opinion, but I do not think there is a gift problem.... owning half of something when the other person does not want to sell has to be discounted... IOW, they might have had to sell at the same price to a person that was not a sister.... not a big market out there for 1/2 of a house...

 

[jimnjana]

Just an opinion, but I do not think there is a gift problem.... owning half of something when the other person does not want to sell has to be discounted... IOW, they might have had to sell at the same price to a person that was not a sister.... not a big market out there for 1/2 of a house...

We did try to sell the place "by owner" but not takers we were asking 165k

 

[pb4uski]

IMO, property tax value is the least relevant data point. While an outside appraisal would have been best, I would keep whatever you got for support from the real estate agent for the $150k value and use that as your basis for tax purposes, so you would have a loss of $5k.

Just keep in mind that if you do claim the loss (and you don't have to) that there is some risk that your loss might be challenged by the IRS. If it was, I wouldn't fight it too much.

Your fact pattern implicitly suggests that the value of the house declined slightly between the date of FILs death and when the 50% interest was sold to SIL. If there is evidence supporting a decline in real estate values in the area during that time it would be helpful. If not, then it suggests that perhaps the $150k value was a little high.

If you do stick with the $150k value it would be important that any estate/probate court filings, SIL's accounting for her basis in the house, etc be consistent with the $150 value. IOW, SIL's total basis would be $145k (50% of $150 + $70 paid to DW for the other 50% interest).

YMMV