Level 3

Question

Estate 1041. Home Sale (Sec 121 Exclusion)

Forum|Forum|3 years ago
February 18, 2023
6 replies
61 views

Married client with 3 kids died Dec 30, 2021 with no will; all property was in client's name. Attorney created an estate. Assets include commercial property(restaurant) held for rent; personal residence; and vacant residence.

Client purchased personal residence for 80K in 2006. Attorney used the assessed value on tax bill as FMV on DOD, $113K. Sold in Nov 2022 for $140K net. Family moved into vacant residence.

How do I apply Sec 121 exclusion since the family(beneficiaries) qualify?

ProSeries Professional

This topic has been closed for replies.

Just-Lisa-Now-

Intuit Community Champion

Assessed value isnt necessarily FMV, so not a smart move on the attorney's part.

Did it really increase in value by 27k (close to 25%) in less than 1 year?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

BobKamman

Level 15

Sometimes it is a very smart move to use the assessed value for certain purposes, like figuring statutory fees and costs, when a low number saves money. That doesn't mean it's the FMV or appraised value. In some parts of the country, real estate values increased by 10% to 20% from 2021 to 2022, so I wouldn't rule out some gain. But more than selling expenses? What month was it listed, at what price? Was there a bidding war, or did they have to lower the cost?

Just-Lisa-Now-

Intuit Community Champion

sales price was only 140k, doesn't sounds like its in an area with high real estate values

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

T

Terry53029

Intuit Community Champion

When you say family, I assume you are talking about the widowed wife and their children. The wife would be eligible for 121, and if a 1099S was issued you report on schedule d (schedule b worksheet) If no 1099S, then you don't need to report. As Lisa said seems like a poor decision on attorney's part, but doesn't really matter

sjrcpa

Level 15

Estates don't qualify for the 121 exclusion.

The property was in the estate's name when sold?

The more I know the more I don’t know.

F

FactswriteAuthor

Level 3

Pulled from Realized Marketplace post "Can an Estate Use a Section 121 Exclusion?"

From Section 121 Exclusion called 1.121-1(c)(3)(l):

Trusts. If a residence is owned by a trust, for the period that a taxpayer is treated under sections 671 through 679 (relating to the treatment of grantors and others as substantial owners) as the owner of the trust or the portion of the trust that includes the residence, the taxpayer will be treated as owning the residence for purposes of satisfying the 2-year ownership requirement of section 121, and the sale or exchange by the trust will be treated as if made by the taxpayer.

From this, I interpret that the estate can qualify since the beneficiaries(the family) qualify for 121 exclusion. Thoughts? This is a community property state too.

BobKamman

Level 15

For Section 121, you have to have owned the property. You said the decedent was the only owner. Doesn't really matter, because the taxpayer is the trust, and the trust neither owned or lived in the property for two years. it is just a legal fiction.

T

TaxGuyBill

Level 15

@Factswrite wrote:

Attorney used the assessed value on tax bill as FMV on DOD,

I don't know how your area works, but in my area the valuation for property tax is well over a year before the actual real estate taxes are due. So it is possible that the "assessed value" is actually from the prior year.

BobKamman

Level 15

Unanswered here is where and why the assessed value was used. In Michigan, for example, the probate court filing fee is based on the value of the estate, and if the executor hasn't yet hired an appraiser, the court says "The fair market value is often arrived at by doubling the state equalized value (SEV) for the property." In any case, IRS doesn't care what number was used for other purposes, and won't accept anything that is either too high or too low.

The property may have increased in value from date of death to date of listing, but probably not more than the selling expenses. This molehill has been turned into a mountain by the false assumption that some number used elsewhere is frozen for eternity as FMV.

T

taxes96786

Level 8

I agree with Lisa. Attorney should have researched the FMV for date of client's death to calculate the proper basis for sale or transfer to beneficiaries.

BobKamman

Level 15

As I wrote, "Unanswered here is where and why the assessed value was used." Tax preparers who think estates can use Section 121 aren't always familiar with the probate process.

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