DEAR BOB: My daughter passed away unexpectedly at age 32. Her living trust left all her assets to me, including her condominium, which she owned about six years. That living trust was a real blessing because I didn’t have to deal with lawyers or the probate court, as I was the successor trustee. The condo has appreciated greatly in market value since her purchase. How do I determine my new stepped-up basis, which you often discuss for inherited property? –Victoria H.
DEAR VICTORIA: To establish your new stepped-up basis for the property, you can use any method that can be documented and is acceptable to the Internal Revenue Service. Your stepped-up basis will become important when you sell the condo because any net amount received exceeding your new basis will be taxable capital gain.
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The IRS will accept a professional appraisal, local property tax assessor’s assessed value, insurance replacement cost, or other documented valuation. The best method is usually a professional appraisal, which typically costs $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 assessed value of the property. In the local jurisdiction, each property is reassessed annually so the assessment was reasonably accurate, as I confirmed it with several local Realtors.
FILING SEPARATE TAX RETURNS CAN FORFEIT $500,000 HOME-SALE TAX BREAK
DEAR BOB: Does that $500,000 principal residence sale tax exemption apply even if a house is only in one spouse’s name? We file separate tax returns. The house was already in my name and ours is a late-in-life marriage. –Barbara DeM.
DEAR BARBARA: Internal Revenue Code 121 allows a $500,000 principal residence sale tax exemption if both spouses meet the 24 month during the 60 months before sale occupancy test although title is held in only one spouse’s name.
However, unless both spouses file a joint tax return in the year of home sale, then only a $250,000 tax exemption will be allowed to the spouse who holds title.
To claim the $500,000 exemption, I suggest you and your husband file a joint tax return in the year of the principal residence sale. Your tax adviser has more details.
MUST LAND SELLER DISCLOSE SEX OFFENDER LIVES NEXT DOOR?
DEAR BOB: I rented a house on 50 acres to a registered sex offender (not necessarily guilty). I am now selling 10 acres, land only, of that property. Must I disclose to my land buyer that a registered sex offender lives on the adjoining property? My tenant has only a month-to-month rental agreement. –Susan L.
DEAR SUSAN: If you use a well-written printed sales contract, it should specify it is up to the property buyer to inquire, if interested, of the local police or sheriff’s office if there are any registered sex offenders living nearby.
This is known as “Megan’s Law.” Most states have now enacted statutes shifting the burden to a property buyer or a tenant to inquire, if concerned, at the local registered sex offender Web site or other information source. If you use a correctly worded sales contract, as the land seller, it is not your responsibility to disclose this information. For more details, please consult a local real estate attorney.
The new Robert Bruss special report, “Pros and Cons of Fast and Slow House Flipping for Big Profits,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
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