Figuring Tax Basis of Inherited Lot

Using the county assessors records is unlikely to be acceptable; the values may not bear any relation to fair market value (often, assessed value is merely a proxy for fair market value, and the only requirement is that the assessed value of every property bear the same ratio to true fair market value; e.g., if Blackacre is FMV $100 and Whiteacre is FMV $200, there is generally no issue from a state property tax perspective if Blackacre is assessed at $32 and Whiteacre at $64 - in either case, the assessed value bears the same ratio to FMV, and any property tax assessed as a percentage of assessed value will thus bear the same ratio to true FMV). You will have to either dig up the estate return, or else have a post-hoc appraisal done based on the selling records of similarly situated properties. Unless you do the foregoing, you are very likely to face the situation where the IRS asserts that you owe tax on the entire sales proceeds because you cannot prove what your basis was. The IRS will, generally, be supported in this matter as the courts generally hold that the taxpayer has the burden of proving his basis, and the IRS may assert that basis is $0 in the absence of any proof. Alternatively, you could ask the IRS for advice on how to handle the matter; they're not ogres and they very well may have a rule of thumb or an alternate valuation method you can use.

That's a good place to start, however, many times assessed values do no equal fair market values. Best to consult with a local appraiser methinks. ChEAr$, Harlan Lunsford, EA n LA

Rather than go all the way to zero, couldn't the heir at least use the deceased's basis as a floor amount in lieu of knowing the FMV at time of death? That figure might be easier to determine exactly from documents already in hand. It's clear that unless you can use an actual cost, and with inherited property you cannot, then you are supposed to attach a statement to Sched D to explain how you figured the basis. I wonder whether a statement such as the following is likely to pass muster: "According to the Daily Bugle business section on April 1st, 2006, average annual residential real estate appreciation in the north end of town was 11% for the last ten years. Applying 11% annual increase to sales price and working back in time ten years to date of inheritance, estimated FMV in 1996 was umpteen thousand dollars."

-Mark Bole

No, the property might have been worth less than that at the time of death. Seth

What's the worst that could happen?

Well, the IRS could say that it was 'under appraised' and you owe more tax..... and...... penalties.... In that case, you have a valid defense, since your local county appraiser tends to raise the appraised value to as high a level as he/she possibly can for local income purposes.......Unless you are talking about a LOT of money, it ain't worth it..., tho... Look at your own house appraisal.....

If they are WRR...WR.... WRRRR.. WRONG,,,,,, well, the gov shouldn't be able to have it both ways......You could probly have a just action to sue for any penalties due to the IRS because of the local municipality"s "under-appraisal"..... but it will probly never come to this......... forget about it... Give it your best shot using the local appraisal and the chances that you will have to pay more due to penalties is miniscule....... In my opinion, you will only have to pay what you actually owe, and that's the way life is, if you are very lucky... On the other hand , if your state doesn't mandate appraisal at FMV, you are out of luck.....but give it a shot anyway Andy in Eureka, Texas

(where property is appraised at FMV plus whatever the appraiser thinks is a reasonable mark-up )

Not really because there's no way to prove that the fair market value of the property hasn't declined below the donor's cost basis as of the time of death.