Taxes after Death

The basis is the property's value at the date of death, so there won't be any gain to report, assuming things move along.

-- Phil Marti Clarksburg, MD

As a general rule, and with the caveat that, based on all of the facts, there may be wrinkles and exceptions that apply in your case that aren't apparent from the facts you described, the basis will be either the fair market value at the date of death, or at the alternate valuation date chosen by the executor if s/he makes the proper election (generally

6 months after death). Thus, if the FMV is $90k at death, and the property is sold for $90k, there will be no taxable gain on the sale. While the $90k will be added to the estate for estate tax purposes, unless the unified credit has been used up, that $90k shouldn't be subject to estate tax. If the property is sold for more than $90k, because the estate is required to distribute all of the proceeds to the beneficiaries, as a general rule the beneficiaries will be taxed on their share of the gain from the sale. Conversely, if the property is sold for less than $90k, the beneficiaries will report their share of the loss. If the property is expected to sell for more than the value it will have on the date of death or the alternate valuation date, one alternative would be to have the lady sell the house herself and exclude all gain on the sale under Sec. 121 (provided she otherwise qualifies). Of course, the downside to that is that she will still need a place to live, and will have to spend some of the proceeds to rent a place (unless one of the rellies is willing to have her live with her/him).

The basis in the house and land is their fair market value on the day the 95 year old dies. Besides a possible estate tax return (if the 95 year old was quite wealthy), an estate income tax return may also have to be filed. If there are any taxes due, the estate pays them.

The value is well below anything that triggers estate tax. After expenses, no tax will be due. Basis steps up to market value on death. (Is the rest of her estate over $2M?) JOE

The $90K would be all she possessed at death. She inherited the house and land herself which would be worth $90k. Does that effect the basis?

In general, no.

No. See IRS Publication 551.

-- Phil Marti Clarksburg, MD

The alternate valuation date for valuing the assets of the decedent can only be used if this is a "taxable estate" (i.e. gross assets exceed $2,000,000). If you are not required to file form 706 (Estate Tax Return) where would you make this "election"?

Oh yeh, just tell this 95 year old lady that she has to move out of her home of 25+ years and go live in the back room of a relative -- just so she can die and they won't be inconvenienced by having to pay a little capital gains tax when that happens. I will practically guarantee that the only way you are getting her out of there is feet first. It ain't going to happen and you are just reinforcing everyones perception of lawyers by suggesting it.

More specifically, the alternate date can be used only if it lowers both the taxable estate and the estate tax.

After all expenses are paid would any taxes be do then? and when the balance would be divided among her heirs or beneficiaries would each one be liable for taxes on what they receive?

Yup - §2032(c).

Stu

Not sure why the experts didn't get more specific since you obviously don't understand much of this. I'm an avid reader of this group but not otherwise I'm not any tax expert.

1) The recipients of inheritances are not taxed. Do not report the inheritance. (Keep records in case the source of the money is ever questioned. It wasn't from selling drugs, or unreported wages, etc.) 2) The amount of the estate is way, way too low to be taxable. 3) If it was taxable, the executor would hire a lawyer to handle the many, many details. The estate would pay the taxes. The money going to the heirs (nieces and nephews) after payment of the taxes and expenses would not be taxable to the heirs. Ivan

Right. However they are taxed on income (e.g. interest, dividends) that is generated from the inheritance to the extent that the estate does not recognize and pay tax.

Assuming she has no other substantial assets, that's correct.

Actually an accountant would be better than a lawyer for doing the taxes, either income or estate.

Unless the particular state has enacted an inheritance tax. This was fairly common at one time, but these days, due to the structure of the federal estate tax, it's not. Stu

So then as I understand it......the estate property would be sold as reqired by her will, taxes would be paid by the estate only on any income and capital gain for the period of time between the her death and distribution of balance of funds to the beneficiaries of the will. Also the estate tax basis would be whatever the value of the property was on the date of her death not the date the the she inherited it herself. And after distribution of funds to beneficiaries they would not be liable for any federal income taxes?. Mac

If that's what the probate court orders - it's generally up to the personal representative to make that decision. If all the heirs agree on something else, the court may well go along.

Technically the probate estate is a tax paying entity until it is closed. On the other hand if it has no assets it's probably not receiving taxable income.

Income tax basis, yes. And and the valuation for determining the size of her taxable estate for estate tax purposes.

Probably. Sometimes it is proper to pass the tax liability on to the beneficiaries rather than have the estate pay it. For example if the beneficiaries are in a lower tax bracket, or if they live in the property for two years before the place is sold, the total income taxes may be less to have them taxed than the estate itself. Stu