Sold some land: Is it gift or inheritance for tax purposes?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
gypsyman
Posts: 20
Joined: Wed Mar 04, 2015 6:02 pm

Sold some land: Is it gift or inheritance for tax purposes?

Post by gypsyman » Fri Feb 14, 2020 6:06 pm

In 1982 parents sold a two acre lot to their four children for $1. It was tax assessed at that time for $64,500. It was stipulated that the lot was not to be sold until both parents passed away. Both have now passed and the lot was sold this year for $64,000.

The attorney who dispersed the funds says that the attorney representing the seller is responsible for issuing a 1099 to the four siblings. We called the sellers attorney and he said no 1099 is necessary because the land was an inheritance and the sale price is a wash when taking into consideration the assed value in 1982.

Our accountant disagrees with this assessment. Do we need to get a third legal opinion?

Thanks for any help.

retiringwhen
Posts: 1601
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by retiringwhen » Fri Feb 14, 2020 6:17 pm

Who paid the property taxes all those years and whose name(s) have been on the title since 1982?

Additionally, who had use and enjoyment of the property for the intervening 38 years?

How formally was the stipulation that the kids could sell the property documented?

I am no expert, but if the 4 children have been paying the taxes all those years, and the 4 children's names are on the title, I would assume the 4 kids have a $64,000 taxable capital gain.

If the parents were paying the taxes, then maybe there is a case for it being considered an inheritance, but if the kids names are on the title, I think you are still stuck with a taxable gain.

The answers to use and enjoyment and sale restriction may be helpful to answer the question, but I think you would need a lawyer who knows the local legal situation.

This is a good example of how title transfers can be a real mess.

illumination
Posts: 367
Joined: Tue Apr 02, 2019 6:13 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by illumination » Fri Feb 14, 2020 6:53 pm

deleted
Last edited by illumination on Fri Feb 14, 2020 8:48 pm, edited 1 time in total.

retiringwhen
Posts: 1601
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by retiringwhen » Fri Feb 14, 2020 7:10 pm

Duh, I did not consider the gift angle. Again, I think local Real Estate Law will be important.

BTW, if it was a gift in 1982, then the parents should have filled out a Gift tax Exemption form in 1982 as I am pretty sure the exemption was under $15K :wink: (https://www.irs.gov/pub/irs-prior/f709--1982.pdf)

The executor of the Estate could do that now to memorialize the gift if it really was a gift.

If either of the decedent's Estates had been at or the estate tax exemption limit, taking this approach may not be advantageous.

You didn't mention how long ago the first parent passed, the Estate tax Exemption used to be much much lower.

Gill
Posts: 5992
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Gill » Fri Feb 14, 2020 7:44 pm

illumination wrote:
Fri Feb 14, 2020 6:53 pm
I would think it was a gift in 1982 and the market value of the land in 1982 would be the cost basis.
No, the donor’s basis would be the basis in the hands of the donees. The gain would be computed using this basis and a 1099 should be issued because the sale is reportable.
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

Double Dog
Posts: 34
Joined: Wed Jan 22, 2020 1:45 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Double Dog » Fri Feb 14, 2020 8:12 pm

gypsyman wrote:
Fri Feb 14, 2020 6:06 pm
We called the sellers attorney and he said no 1099 is necessary because the land was an inheritance and the sale price is a wash when taking into consideration the assed value in 1982.
Are you one of the four children who just sold the land, or the new buyer of the lot? Or just a neutral third party?

Regardless of the other questions, this quoted bit seems odd. Why is it the attorney's job to care about the seller's cost basis?

Gill
Posts: 5992
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Gill » Fri Feb 14, 2020 8:27 pm

Double Dog wrote:
Fri Feb 14, 2020 8:12 pm
gypsyman wrote:
Fri Feb 14, 2020 6:06 pm
We called the sellers attorney and he said no 1099 is necessary because the land was an inheritance and the sale price is a wash when taking into consideration the assed value in 1982.
Are you one of the four children who just sold the land, or the new buyer of the lot? Or just a neutral third party?

Regardless of the other questions, this quoted bit seems odd. Why is it the attorney's job to care about the seller's cost basis?
I agree. Also, why is the 1099 not being issued regardless of how the sellers acquired the property?
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

User avatar
MP123
Posts: 1169
Joined: Thu Feb 16, 2017 3:32 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by MP123 » Fri Feb 14, 2020 8:41 pm

It might be a gift in which case you'd use the parent's cost basis.

Or it might be a sale in which case you'd use the $1. But that seems unlikely.

However, I don't really see any way it would be an inheritance since the parents were apparently alive at the time of transfer.

Gill
Posts: 5992
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Gill » Fri Feb 14, 2020 8:45 pm

MP123 wrote:
Fri Feb 14, 2020 8:41 pm
It might be a gift in which case you'd use the parent's cost basis.

Or it might be a sale in which case you'd use the $1. But that seems unlikely.

However, I don't really see any way it would be an inheritance since the parents were apparently alive at the time of transfer.
It can’t be a sale with nominal consideration. Structuring a gift as a sale with nominal consideration between family members is still a gift. It was a gift but could have been included in the donor’s estate if they retained a life interest in the property in which case there would be a stepped up basis. The assessed value in 1982 is irrelevant.
Gill
Last edited by Gill on Fri Feb 14, 2020 8:49 pm, edited 1 time in total.
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

User avatar
MP123
Posts: 1169
Joined: Thu Feb 16, 2017 3:32 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by MP123 » Fri Feb 14, 2020 8:48 pm

Gill wrote:
Fri Feb 14, 2020 8:45 pm
MP123 wrote:
Fri Feb 14, 2020 8:41 pm
It might be a gift in which case you'd use the parent's cost basis.

Or it might be a sale in which case you'd use the $1. But that seems unlikely.

However, I don't really see any way it would be an inheritance since the parents were apparently alive at the time of transfer.
It can’t be a sale with nominal consideration. Structuring a gift as a sale with nominal consideration between family members is still a gift. It was a gift but could have been included in the donor’s estate if they retained a life interest in the property in which case there would be a stepped up basis.
Gill
Yes, that's a good point. I think we need more information.

illumination
Posts: 367
Joined: Tue Apr 02, 2019 6:13 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by illumination » Fri Feb 14, 2020 8:49 pm

Gill wrote:
Fri Feb 14, 2020 7:44 pm
illumination wrote:
Fri Feb 14, 2020 6:53 pm
I would think it was a gift in 1982 and the market value of the land in 1982 would be the cost basis.
No, the donor’s basis would be the basis in the hands of the donees. The gain would be computed using this basis and a 1099 should be issued because the sale is reportable.
Gill
You're correct, I deleted my post, I was making a different assumption.

User avatar
BolderBoy
Posts: 4643
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by BolderBoy » Fri Feb 14, 2020 8:51 pm

I think a 1099-S ought to be filed.

Hurts nothing and avoids the IRS computers generating automatic inquiry letters which require a response (with a 1099-S included, probably).
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Gill
Posts: 5992
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Gill » Fri Feb 14, 2020 9:03 pm

BolderBoy wrote:
Fri Feb 14, 2020 8:51 pm
I think a 1099-S ought to be filed.

Hurts nothing and avoids the IRS computers generating automatic inquiry letters which require a response (with a 1099-S included, probably).
More importantly, the seller’s attorney is obligated to issue a 1099-S 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

Topic Author
gypsyman
Posts: 20
Joined: Wed Mar 04, 2015 6:02 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by gypsyman » Sat Feb 15, 2020 2:04 pm

Sorry, my husband doesn’t listen well. My parents on the deed sold the house and land, and a separate 2 acre property to the four of us (children) for $1.00 as joint tenants. We were adults. The stipulation in the deed was they could live there until they died. We have no idea of the value back in 1982. In 2007 my last parent died. The house was sold to my brother...we aren’t asking about the house property. The 2 acre piece of land was taxed at the value of $63,400 by the Town. (My father use to garden on this until he passed in 2005).

My sister needed money and wanted out, so we did a quitclaim deed in 2010 for $10,000 although we had an offer in 2008 for $60,000 which we did not take.

We (3 remaining on the deed), sold the lot for $63,000. As the original deed was for joint tenants and we kept the land until my mother died, do we pay capital gains on this lot. We have had conflicting information. Accountants say yes, a couple of lawyers said no, one said probably. Which law specifies what we must do/ or pay?

The children in 1982 were between 22 years and 29years old. I don’t think we paid the property taxes until the late 1990’s.

Sorry for the mixed information. My husband hasn’t been involved and didn’t ask specifics. I’m at a loss with so much variation of information. The main crust is, we couldn’t sell the property until the parents died. If we have to pay or declare, would the step up cost basis of $63,400 come into play as my mother died in 2007 when on taxes, that as the value? Or $10,000 as that is what we paid in 2010 to let my sister out of it?
Thanks for any help.

Topic Author
gypsyman
Posts: 20
Joined: Wed Mar 04, 2015 6:02 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by gypsyman » Sat Feb 15, 2020 2:11 pm

The buyers attorney who is suppose to send us a 1099s isn’t. He said we can use the Closing Disclosure. He is also the one who said no capital gains would need to be paid in that situation. He said it didn’t matter it was bare land, also it didn’t matter the Quitclaim deed to our sister with our payment of $10,000.

We just want to do what is fair to us, and right in regard to the law.
Thanks...

Topic Author
gypsyman
Posts: 20
Joined: Wed Mar 04, 2015 6:02 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by gypsyman » Sat Feb 15, 2020 2:18 pm

The seller attorney ( ours), said the 1099s was the responsibility of the buyers attorney. There was also no estate when the parents died. There were very little. No cars. There was nothing of value and nothing to split up. (We were one of the poorest families in town!). At the time my mother died, the lawyer said there wasn’t anything we had to do. (The house was a hoarders nest with junk, and I mean trash....)

Gill
Posts: 5992
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by Gill » Sat Feb 15, 2020 3:34 pm

gypsyman wrote:
Sat Feb 15, 2020 2:04 pm

We (3 remaining on the deed), sold the lot for $63,000. As the original deed was for joint tenants and we kept the land until my mother died, do we pay capital gains on this lot. We have had conflicting information. Accountants say yes, a couple of lawyers said no, one said probably. Which law specifies what we must do/ or pay?
The key to this puzzle is quite simple and you shouldn't be receiving conflicting information. The fact that your parents retained the use of it during their lifetimes means that the property would be included in their estates and have a stepped up value as of their dates of death. Your mother dying last, the value at her date of death establishes the basis. Because it appears you sold it not long after her death, the sales prices becomes the date of death value. It should be reported as a sale but the basis equals the proceeds and therefore no gain or loss. You may deduct selling expenses from the sale proceeds and actually have a small loss. Forget about the 1099. You don't need it.
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

Topic Author
gypsyman
Posts: 20
Joined: Wed Mar 04, 2015 6:02 pm

Re: Sold some land: Is it gift or inheritance for tax purposes?

Post by gypsyman » Sat Feb 15, 2020 3:58 pm

Thanks everyone, especially Gill. I am always amazed at the helpfulness of this community.

Post Reply