Inherited home

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moorso
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Joined: Sun Feb 16, 2014 4:04 pm

Inherited home

Post by moorso » Mon Feb 11, 2019 9:44 am

My friend inherited part of a home in 2018 when her mother passed away. She has two brothers who also shared in that inheritance. Since my friend was living with her mom at the time of her passing, the three of them decided that she should own and stay in the house because she needed a place to stay. So they had an appraisal of the house done which came in at $210,000. Based on this my friend went out and got a $140,000 mortgage and paid her brothers each $70,000. The home is now in her name, and when she eventually sells she will realize her $70,000 portion.

My questions are are there any tax consequences for either her or her brothers and is there any thing that needs to be reported on their taxes this year? My understanding is that if there were ira or 401k money involved withdrawals would be taxable but inherited property is not.

Gill
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Re: Inherited home

Post by Gill » Mon Feb 11, 2019 10:13 am

They really just adjusted their interests in the estate. The house has a basis of $210,000 and each of their shares are $70,000. The two sellers should report a sale of a 1/3 interest at no gain or loss.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Watty
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Re: Inherited home

Post by Watty » Mon Feb 11, 2019 11:38 am

Gill wrote:
Mon Feb 11, 2019 10:13 am
They really just adjusted their interests in the estate. The house has a basis of $210,000 and each of their shares are $70,000. The two sellers should report a sale of a 1/3 interest at no gain or loss.
Gill
I am not a tax pro but there may have been a change in value of the home between the date of death and when the appraisal was done this could be a capital gain or loss for the brothers. There would also be adjustments for any improvements to the house and selling costs.

It was a bit different but when we sold my mom's house after she died the accountant that did her final tax return gave a tax form that calculated all this to the siblings to use in doing their taxes.

Gill
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Location: Florida

Re: Inherited home

Post by Gill » Mon Feb 11, 2019 11:44 am

Watty wrote:
Mon Feb 11, 2019 11:38 am
Gill wrote:
Mon Feb 11, 2019 10:13 am
They really just adjusted their interests in the estate. The house has a basis of $210,000 and each of their shares are $70,000. The two sellers should report a sale of a 1/3 interest at no gain or loss.
Gill
I am not a tax pro but there may have been a change in value of the home between the date of death and when the appraisal was done this could be a capital gain or loss for the brothers. There would also be adjustments for any improvements to the house and selling costs.

It was a bit different but when we sold my mom's house after she died the accountant that did her final tax return gave a tax form that calculated all this to the siblings to use in doing their taxes.
It appears this all happened in 2018. An appraisal within a reasonable time after date of death is deemed to accurately reflect date of death value. There is no gain or loss realized in this situation.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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CAsage
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Re: Inherited home

Post by CAsage » Mon Feb 11, 2019 2:03 pm

One tangential comment. If the house was truly appraised and would sell today for $210,000, the sister will not recover $70k. That is because in many areas, it costs about ~10% for broker fees, title insurance, etc to sell a house. Selling today she would net ~90% of 210,000 less the mortgage payoff of $140k, or about $49,000 clear. To be fair, in cases like this it's best to discount the appraised value (if you took a high or average sale estimate) by 5~10% before dividing it up. More or less. This similar issue comes up in splitting houses in divorce = it's net sales price that matters. Since this particular case was handled happily between siblings and all ended well... that's good. I hope she lives there happily, and has them all over for the holidays.
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Topic Author
moorso
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Re: Inherited home

Post by moorso » Mon Feb 11, 2019 2:34 pm

To be perfectly honest, the home was appraised for $225,000 so the brothers did help account for closing costs and sellers commissions . I just sold my place and paid a total of 5.5% in brokers commissions so I think the 10% may be rich, but of course the eventual sales price is also key to how she makes out. In any event she will have no tax liability regardless of w h at she is able to get for the house in a few years.

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