Property base step-up question

[David S]

When the owner pass away, their property base will step-up. If after a few months, the house's sold price is higher than step-up base, but the net is less than step-up base. Do they still have to pay the capital gain tax? Say, step-up base is $1.0M, sold at $1.05M with $60K selling cost ($50K for both side realtors' commission, $10K for the other cost). Thanks!

 

[TerryRohrer]

If the basis has increased and their net is less than the basis, what is there to tax? Losses generally are not taxable. Hopefully, this is idle curiosity and not a matter in developing conclusions in an appraisal.

 

[David S]

Then, if today's market value is $1.0M but also sold at $1.05M (with $60K selling cost) TODAY, assuming no stip, no tax, right? So are we appraising market value or seller's net?

 

[TerryRohrer]

In your shoes, I would decline the assignment. Does the definition of value you are developing an opinion of include consideration of a sellers net?

 

[Terrel L. Shields]

If someone sells a house for 1.1 million and its cost basis was 1 million, then they pay capital gains on the 0.1 million extra that they sold it for. But if you hold it for 2 years and live in it for those 2 years, then there is a set amount that is exempted from taxation of the first $250k ($500k for joint couples) so you pay capital gains on the net difference otherwise.

 

[Elliott]

What is a Date of Death Valuation?​

A date of death valuation is a snapshot of how much a person’s home or property was worth on the day they died.

This value is important for legal procedures like settling the estate, figuring out taxes, and making sure everything is divided fairly among heirs and/or beneficiaries.

What is an Alternate Valuation Date?​

An alternate valuation date gives you the option to value a deceased loved one’s estate six months after they pass away, rather than using the date of death. This option can be helpful if the market fluctuates significantly during those six months.

This option can be used to save on taxes. Say your loved one’s house is worth $500,000 when they died. Six months later, the housing market has dropped and the house is only worth $450,000. By electing the alternate valuation date, estate taxes will be less because they’re based on the lower value.

AVD is only an option if there’s a decrease in the estate value and the estate tax liability.

Date of Death vs. Alternate Valuation Date – How to Choose?​

It all comes down to what has happened to the value of the property in the six months following the person’s death. In short, use the date of death valuation if the property is stable or rising in value and opt for the alternate valuation date if the real estate market drops after death to reduce taxes.

When considering whether to use a date of death valuation or alternate valuation, work with an expert to review the overall financial situation of the estate.

Date of Death and Alternate Valuation Date: What to Know - Akrivis

Settle an estate with confidence. Learn more about date of death valuations and alternate valuation dates from the experts at Akrivis.

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Are you the PR, executor or the appraiser?

 

[sputnam]

When the owner pass away, their property base will step-up. If after a few months, the house's sold price is higher than step-up base, but the net is less than step-up base. Do they still have to pay the capital gain tax? Say, step-up base is $1.0M, sold at $1.05M with $60K selling cost ($50K for both side realtors' commission, $10K for the other cost). Thanks!

The basis for the property is the price at which the owner (or deceased owner) acquired it. Capital gains are due on the increase however, there is a floor. I can't remember how much the floor is... but it's substantial. Talk to your tax advisor.

 

[Mark K]

When the owner pass away, their property base will step-up. If after a few months, the house's sold price is higher than step-up base, but the net is less than step-up base. Do they still have to pay the capital gain tax? Say, step-up base is $1.0M, sold at $1.05M with $60K selling cost ($50K for both side realtors' commission, $10K for the other cost). Thanks!

There would be a $50K short term capital gain but the expenses to sell are $60K, which offsets the gain. Possibly show a $10K short term capital loss. A CPA can explain better than we can but I believe this is correct.

Works the same in the stock market. Buy stock on margin (basically borrow the money) then sell it for a $1,000 gain. The interest charge of say $100 is an expense and your net taxable gain is $900.