How to determine inherited property’s stepped-up basis

DEAR BOB: My daughter passed away unexpectedly at age 32.Her living trust left all her assets to me, including her condominium, whichshe owned about six years. That living trust was a real blessing because Ididn’t have to deal with lawyers or the probate court, as I was the successortrustee. The condo has appreciated greatly in market value since her purchase.How do I determine my new stepped-up basis, which you often discuss forinherited property? –Victoria H.

DEAR VICTORIA: To establish your new stepped-up basis forthe property, you can use any method that can be documented and is acceptableto the Internal Revenue Service. Your stepped-up basis will become importantwhen you sell the condo because any net amount received exceeding your newbasis will be taxable capital gain.

Purchase Bob Bruss reports online.

The IRS will accept a professional appraisal, local propertytax assessor’s assessed value, insurance replacement cost, or other documentedvaluation. The best method is usually a professional appraisal, which typicallycosts $300 to $500.

For example, when I inherited a property several years ago,my first stop was the local tax assessor’s office to determine the assessedvalue of the property. In the local jurisdiction, each property is reassessedannually so the assessment was reasonably accurate, as I confirmed it withseveral local Realtors.


DEAR BOB: Does that $500,000 principal residence sale taxexemption apply even if a house is only in one spouse’s name? We file separatetax returns. The house was already in my name and ours is a late-in-lifemarriage. –Barbara DeM.

DEAR BARBARA: Internal Revenue Code 121 allows a $500,000principal residence sale tax exemption if both spouses meet the 24 month duringthe 60 months before sale occupancy test although title is held in only onespouse’s name.

However, unless both spouses file a joint tax return in theyear of home sale, then only a $250,000 tax exemption will be allowed to thespouse who holds title.

To claim the $500,000 exemption, I suggest you and yourhusband file a joint tax return in the year of the principal residence sale.Your tax adviser has more details.


DEAR BOB: I rented a house on 50 acres to a registered sexoffender (not necessarily guilty). I am now selling 10 acres, land only, ofthat property. Must I disclose to my land buyer that a registered sex offenderlives on the adjoining property? My tenant has only a month-to-month rentalagreement. –Susan L.

DEAR SUSAN: If you use a well-written printed salescontract, it should specify it is up to the property buyer to inquire, ifinterested, of the local police or sheriff’s office if there are any registeredsex offenders living nearby.

This is known as “Megan’s Law.” Most states havenow enacted statutes shifting the burden to a property buyer or a tenant toinquire, if concerned, at the local registered sex offender Web site or otherinformation source. If you use a correctly worded sales contract, as the landseller, it is not your responsibility to disclose this information. For moredetails, please consult a local real estate attorney.

The new Robert Bruss special report, “Pros and Cons ofFast and Slow House Flipping for Big Profits,” is now available for $5from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at1-800-736-1736 or instant Internet delivery at Questions for this columnare welcome at either address.

(For more information on Bob Bruss publications, visit his
Real Estate Center

Copyright 2006 Inman News

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