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Old 04-21-2013, 11:37 AM
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Inheritance issue

We filed our 2012 tax return with an error. We had a home deeded to us in 2007 where the owner had life rights. When i filed i put that the home was an inheritance with the basis the same as the sale price. When in fact it was a gift with the basis at the date of death which is the same as the sale price ( we sold it 5 months after death). Do i need to amend my return to reflect that this was not an inheritance and provide the documentation from the sale?



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Old 04-21-2013, 12:06 PM
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FYI the sale was for 283,000



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Old 04-21-2013, 08:19 PM
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“We filed our 2012 tax return with an error. We had a home deeded to us in 2007 where the owner had life rights. “===========>A life estate deed is a deed in which the owner transfers the future ownership of his/her home but retains the current ownership, creating both a present interest and a future interest in the property. The owner as the present interest holder, has the exclusive right to enjoy and live in the residence until he/she passes. The owner is also responsible for paying the ongoing expenses of the property, such as taxes, insurance and maintenance costs. You, as the future interest holder ,receive the right to own and use the property after the owner passes. This allows the property to pass to the owner’s children or other person whom he/she wishes to have the property as a matter of law without interference from the probate court.
“When i filed i put that the home was an inheritance with the basis the same as the sale price.”========= Your basis for inherited property from a decedent is generally the FMV of the property at the date of the individual’s death OR the FMV on the alternate valuation date if lower than the FMV, if so elected by the personal representative for the estate. Instead of the FMV at the date of death, the personal representative for the estate could choose to use an alternate valuation date six months later.

“ When in fact it was a gift with the basis at the date of death which is the same as the sale price ( we sold it 5 months after death).”=============> For the gifted home, if the FMV of the property at the time of the gift is less than the adjusted basis, your basis depends on whether you have a gain or a loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis. Your basis for figuring loss is its FMV when you received the gift. And there is no gain/loss when you dispose of it between the FMV and the adj basis. The capital gains tax rates are determined by the type of investment asset and the holding period of the asset. Capital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 35%. In addition to the federal capital gains tax rates, your capital gains will also be subject to state income taxes. Many states do not have separate capital gains tax rates. Instead, most states will tax your capital gains as ordinary income subject to the state income taxes rates.

If the FMV of the property is equal to or greater than the adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. You need to increase your basis by all or part of any gift tax paid, depending on the date of the gift.
“ Do i need to amend my return to reflect that this was not an inheritance and provide the documentation from the sale?”===============>As long as you reported any capital gain from the sale of the home as an inherited home, NOT as a gifted home, then, you need to file your amended return(both fed and your state) to properly reflect/adjust your capital gain on your return due to the difference of capital gain amount recognized on the sale. As mentioned above, in general, when you eventually sell your inherited property, you have an obligation to report it on a Sch D/ form 8949 that you attach to your 1040. The form requires you to report your long-term transaction separately, since long-term gains are subject to the lower capital gains tax rates and short-term gains are taxed as ordinary income. Therefore, you should always report the sale of inherited property as a long-term gain or loss. However, you can still reduce your long-term gains with any short-term losses you incur. In the case of the gifted home, as said, the IRS Tax Code states that there is no provision to allow for a stepped-up basis" in the calculation of capital gains".



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Old 04-21-2013, 09:54 PM
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Thank you!!!! That is a fantastic response. The house was deeded to us as a life estate deed as stated in your first response. In 2007. Is this a "gift" or inheritance? The basis was stepped up to d.o.d. prurient to an irs code. Thus the basis net is $0 we sold the house w/in 6 months of the d.o.d. thus the cost to us was the same as the sale price. I listed it as an inheritance on the return as how we acquired the home. Does it matter? The basis would be the same. I dont what to open a can a worms as the calculation results in no tax loss or gain. All that was reported to the IRS was 1099-2 for $283,000 for the sale.
Again thank you for your kind response



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Old 04-21-2013, 10:38 PM
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“ In 2007. Is this a "gift" or inheritance? “=======>IT is a gift , the remainder interest,as you received the home while the owner was alive( as long as home was trasferred outright to you , as a donee). The gift tax reaches the gratuitous abandonment of ownership or control in favor of another person during life, whereas estate is assets owned by an individual at death, to be distributed according to the individual's will (or a court ruling if there is no will).The issue is of special legal significance on a question of death of the person.
“The basis was stepped up to d.o.d. prurient to an irs code. Thus the basis net is $0 we sold the house w/in 6 months of the d.o.d. thus the cost to us was the same as the sale price. I listed it as an inheritance on the return as how we acquired the home. Does it matter?”=======>As mentioned previously, as long as you reported any capital gain from the sale of the home as an inherited home, NOT as a gifted home, then, you need to file your amended return(both fed and your state) to properly reflect/adjust your capital gain on your return due to the difference of capital gain amount recognized on the sale;CG from the sale of inherited home is LTCG while the CG from the sale of the home as a gift is also LTCG however, the amount of LTCG can be different.
“ The basis would be the same.”========>The basis may or may not be the same; for example,all gifts are valued at FMV ; however, the basis of the home as a gift depends on the situation ; as said, if the FMV of the property was equal to or greater than the adjusted basis, your basis, NOT stepped up basis, FMV in 2007) is the donor's adjusted basis at the time you received the gift for gain purposes. If the FMV of the home was LOWER than the adj basis of the home , then, your basis for gain purposes ‘d be the adj basis of them home while the basis for the loss’d be the FMV of the gifted home.
I dont what to open a can a worms as the calculation results in no tax loss or gain. All that was reported to the IRS was 1099-2 for $283,000 for the sale.”=============>I guess you need to contact the IRS for more info in detail.


Last edited by Wnhough : 04-21-2013 at 11:08 PM.


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