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mosaic | Fair market value of real estate? |
My parents sold me a house for 1 cent with the clause that they live in it for their lifetimes. After their passing I sold the house. I have to file my taxes for that year. My accountant told me that I only owe the difference between the fair market value of the house and the price that it was sold for. I have two questions:
1. How do I find the fair market value of a house that was sold in prior years?
2. I forgot to mention to my accountant that I had "owned" the house (considering the 1 cent deal made). Will that affect how much taxes I owe?
Thanks for any help! |
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cloothe
 |
You need to back to your accountant and tell him the rest of the facts.
But, to begin with, your profit on the sale is the value of the house, MINUS the value of the "life estate" (basically, what the house would have rented for times the life expectancy of your parents at the time they sold/gave it to you.). So, if your parents were 50 at the time, and their average life expectancy was, say, 30 years, then the value of the house you got was less than it would have been if they were already 90.
There are other complicating factors as well. They may (or may not) have owed a gift tax at the time of the sale. It might matter whether the sale was recorded on the county records. It might matter whether there were any other heirs. Etc., etc. Too much to go into here, but you need to talk to the accountant and possibly to a lawyer.
Good luck!! |
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kate
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Go back to the accountant and mention your 1 cent ownership . . . have him advise you from there. |
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woodluvto
|
Penny wise and pound foolish. Had you inherited the house you would be paying no tax. Your profit would be the sales price less the fair market value of the profit at time of inheritance which is zero. Since your parents sold it to you, you now have cost basis plus carryover basis for the gift portion. So, if your parents bought the house for 20k then your basis is 20k. It means that you pay tax on the difference between the sales price and the 20k.
No need to find the fair market value from you perspective to compute the amount of taxes due. From your set of facts you are engaging in futility. Just be sure to tell your accountant before he starts work on your return. |
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STEVEN F
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So far you have receive a little good advice and a lot of very bad advice. Kate said to go back to your accountant with the whole story. That is the only advice so far that can't be considered fraud. You actually needed to consult a CPA before you 'bought' the house. They would have probably told you not to. As it stands, there is not enough room on this forum to properly advise you. |
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spicertax
 |
Waggy is correct. Tell your accountant to look at IRS Code Section 2036. It confirms that you get a "stepped up" basis equal to value at the second death. |
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Anthony C
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The fair market value during the sale or in other word Book value can be located from your local tax office, tell them the size, location ect and they should be able to give you an estimate, but I believe the taxes are based on the actual sale price. |
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Robert
 |
Issues are your basis and capital gains
forget about the 1 penny deal . You want your basis to be the fair market value of the home at the time of the transfer. That is your basis. So if they gave you a home worth 200k and you sold it for 225K you have 25k tax liability (capital gains) could be long or short depending on time held. less cost of sale and or improvements. Also if this was your own home which you lived in , it could be exempt from tax depending on the price. The worse case you could be in is you end up inheriting your mom and pa basis and I am pretty sure It will be fair value at time of transfer. |
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waggy_33
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Ask a Realtor to give you the value of comparable homes for the date that your second parent died. Since the sale for 1 cent was a sham the whole house would have been includable in their estate. Therefore the value on the date of the second death is the value you use to determine your gain or loss.
As I said the sale was a sham. Because they retained the right to live in the house for life the sale to you is ignored. |
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ya_jerry
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What you really owe is TAXES on the difference between the price you sold it for (net, after sales costs), and the price you bought it for (called your basis).
One could argue that your basis is one penny. Explain the situation to your accountant. If he says your basis is a penny, find a more aggressive accountant. The restrictive clause makes your basis higher.
I think you should consider your basis to be the fair market value in the year you took ownership. If you do not know that value, you can estimate it based on the tax assessment (look at your county website for the property records. They have a property assessment value every few years.
The formula that I would use is this:
Look at the current assessed value. Look at how much you sold it for (which is likely to be 20% higher or so). Take that same percentage uplift, and apply it to the assessed value in the year that you acquired the property.
Example: Say you got the property in 1999 for 1 cent. The assessed value was $125K. Now the assed value is $250K. Say you sold it for $300K. You sold it for 20% over the assessed value (= 300K / 200K). So you can assume that market values are 20% higher than assessments. So figure your market value was $150K in 1999 (= 125 x 1.20). You owe tax on the difference: 300K minus 150K.
If you want to be more aggressive than that, you could say that the clause that restricted you from selling the property was actually worth the price of rent for those years. What does a house rent for? Say $1000 per month. So for the years of 1999 - 2006, your basis increased by $1000 per month, or maybe $72K.
By increasing your basis, you pay less taxes. Personally, I say you should get some reasonable facts together, make an aggressive case, and then if the IRS calls you on it, you may owe back taxes (so hold on to the money - don't spend it!!!), but if you have a reasonable case, they may not agree with you, but they are less likely to charge you with penalties.
Be aware, though, that an argument could be made that you received a gift that you never paid taxes on.
I am not an accountant, so take it with a hefty grain of salt. |
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RoRo
|
that is correct, you have to pay taxes on the gain of the sale of the house. Finding the FMV is usually the job of the accountant, the realitor of the house, or you can go to your municipal building to find out. The Base of the home when you buy it is going to be the FMV of the house when you received it. The gain now is going to be the Selling Price - (Base-Depreciation). Your accountant should figure this out for you. Goal, is to recognized as little gain as possible so you don't pay taxes on it. |
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Lowa
 |
If you have a realtor or can find one, they can look up comps to compare to your house so you can figure out how much its worth. |
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rmijares
 |
1. Fair market value = you can start at www.zillow.com to find out an approximate value of your home you can also find the assed value from your tax records.
2. If you have lived and owned the house for more than 2 years then you can claim an excemption for up to $250,000... Check with you accountant..
good luck! |
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Kutekymmee
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1 - your accountant or a real estate agent can look that up for you. they compare the sale prices of similar homes at that time.
2 - you need to mention that to your accountant, you may be liable for taxes on the entire profit you made from the sale of the home. |
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Lt Smash
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Any real estate appraiser go do a past appraisal effective of a certain date and find value for any period of time. |
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