jklcpa Posted March 6, 2014 Report Share Posted March 6, 2014 Client and her 2 brothers inherited Dad's house 2 years ago and sold it in 2013. Stepmother was not party to any share in the house, and she was living there. According to my client, she and brothers hired a lawyer who negotiated a payoff to dad's wife to finally vacate the property; she would not leave voluntarily, even though the house was not left to her in the will. My first 2 questions are what to do with the legal fees to negotiate this settlement with the stepmother and the payoff itself? Schedule A for the legal fees for preservation of the asset or income-producing property, or lump in with expenses of sale because they had to get get stepmom out so they could sell it? Then, what about this payoff? The house was titled in their 3 personal names at the time all of this transpired, not in the estate at all, and they were the ones that had to pay this woman off to get her out of the house. Third question - expenses the 3 children have been paying on this property such as insurance, utilities, lawn service, etc. Carrying charges that add to basis? Fourth - real estate taxes on this property were not deducted in prior years on Sch A. Can these also be carrying charges added to basis? Last question - estate was cash poor and my client declined the executrix fee out of the estate, but did ask for $2000 for handling all of this related to the house and its sale, so she received $2000 more of the net proceeds and the 2 brothers amounts were adjusted down by $1000 each. TIA. I hope some of you are getting more sleep than me, because I'm not thinking about any of this too clearly! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 6, 2014 Report Share Posted March 6, 2014 Well, it would be reasonable to treat the payoff as an addition to basis, or as an expense of sale. Ditto the legal fee. I would include it in the sales expense rather than Sch A. The 2K is an Executrix fee, IMHO, so that's how I'd report it. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 6, 2014 Report Share Posted March 6, 2014 Have you figured out the "starting point" for the basis? It seems that the house was given prior to death so the basis of the father stays. I guess the usage of the house will be same as when the father was alive. Since they didn't have as a rental property nor as an investment, so, I would be inclined to deduct RE taxes on Schedule A in prior and not add them to the basis. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 6, 2014 Author Report Share Posted March 6, 2014 Have you figured out the "starting point" for the basis? It seems that the house was given prior to death so the basis of the father stays. I guess the usage of the house will be same as when the father was alive. Since they didn't have as a rental property nor as an investment, so, I would be inclined to deduct RE taxes on Schedule A in prior and not add them to the basis. It was inherited, estate had it appraised, went through probate, value of $300,000 was shown in the estate's inventory of assets. They would have done the fix up and put it on the market right away if the stepmother wasn't in the house. In the 2+ years following dad's death, they paid out $25,447 these additional costs (does not include r.e. taxes): Payoff to stepmom to get her out $7,000 plus $1,500 to attorney to handle this Fix up expenses $10,294 Expenses related to sale (appraisal, inspection, closing costs, attorney) $4,847 Utilities, insurance, lawn service $1,806 Finally sold the house for $265,000 Quote Link to comment Share on other sites More sharing options...
mcb39 Posted March 6, 2014 Report Share Posted March 6, 2014 The sky's the limit if it truly is an inherited house. I have a client who came to me with a $200,000 carryforward capital loss. I thought she had sold stock or something and wondered why anyone would take that kind of hit. Turned out that she had inherited her father's house valued at $600,000 and sold it for $400,000 rather than pay the upkeep, etc. The carryforward will probably outlive her, especially on WI taxes where you are only allowed to take $500 of the loss per year as opposed to the Fed limit of $3000. Had a new client come in the other night with the worry that he would have to pay CG for selling the house he inherited from his Mom. Turns out that he will end up with quite a loss because the assessed value is $84,000 and he sold it for $60,000 before expenses of fixup and selling fee. The realtor kept telling him that he would never sell it and he (the realtor) would give him $29,000 cash for it. Therefore, in reference to the other post, add Realtors to my hit list. At least this one. 1 Quote Link to comment Share on other sites More sharing options...
Crackerjack Posted March 7, 2014 Report Share Posted March 7, 2014 That sounds like one unethical realtor. On my list is the lawyer who told the personal rep (my client) that the decedent's house was worth at least $90,000, but valued it on the Estate Inventory at $30,000, presumably to save probate filing fees. The estate sold the house for $90,000. Fortunately the $60,000 "gain" was excludible on the 1041 under code sec 121. This lawyer, by the way, never got an EIN for the estate and had the 1099-s issued to the personal rep's SSN. Client came to me to fix the lawyer's mess. Quote Link to comment Share on other sites More sharing options...
Lion EA Posted March 7, 2014 Report Share Posted March 7, 2014 Can you use sec 121 on a decedent's 1041? After all, the decedent is, well, dead, so no longer living in the house now that it's in the estate/on the 1041. The house is no one's principal residence while it's in the estate, unless a beneficiary is living in it. 1 Quote Link to comment Share on other sites More sharing options...
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