basis of house

[Kea]

Client moved into nursing home in early 2007. At that time the county tax rolls valued his house at $40K. Medicaid put lien against house to reimburse expenses Medicaid paid to nursing home. Family did not feel the house was worth that much and hired an appraiser in Feb 2008. Appraiser valued house at $22K and Medicaid agreed to this value. Client died in Nov 2007. In October of 2008 the people living next door to that house offered to buy it for the amount on the county tax rolls ($40K). (In the meantime the family did make some repairs to the house, but not of a significant value.)

Normally, I would use the appraiser's value as the basis of the house and then add the costs of the repairs. However, the FMV is what a willing buyer will pay a willing seller. Since (a few months later) the buyer offered to pay the county appraisal that seems to better fit the definition. In 2008, the value did not double over a few months. Not when most properties were decreasing in value.

In this scenario, does it make sense to disregard the appraiser's estimate? I don't think the fact that Medicaid accepted the lower appraisal is a factor in determining the basis.

Thanks

[lbbwest]

Client moved into nursing home in early 2007. At that time the county tax rolls valued his house at $40K. Medicaid put lien against house to reimburse expenses Medicaid paid to nursing home. Family did not feel the house was worth that much and hired an appraiser in Feb 2008. Appraiser valued house at $22K and Medicaid agreed to this value. Client died in Nov 2007. In October of 2008 the people living next door to that house offered to buy it for the amount on the county tax rolls ($40K). (In the meantime the family did make some repairs to the house, but not of a significant value.)

Normally, I would use the appraiser's value as the basis of the house and then add the costs of the repairs. However, the FMV is what a willing buyer will pay a willing seller. Since (a few months later) the buyer offered to pay the county appraisal that seems to better fit the definition. In 2008, the value did not double over a few months. Not when most properties were decreasing in value.

In this scenario, does it make sense to disregard the appraiser's estimate? I don't think the fact that Medicaid accepted the lower appraisal is a factor in determining the basis.

Thanks

Just to make sure I understand, family didn't "think" house was worth 40K so hired someone to "guesstimate" lower, and sure enough person paying the appraiser turned out to get the result they wanted. Who'd a thunk? So, in this scenario the family only has to pay back the 22K for their dearly departed's care, you and I get to pay the rest of the cost, family keeps the balance, and you don't want to pay capital gains on what we had to pay. Is that correct? Don't forget to add the cost of the appraisal and "repairs" to basis....so then you can deduct a loss, right?

It's a wonderful country. lbb

[Kea]

Yes, I am trying to look out for my client rather than the nation of taxpayers. I want my clients to pay the least tax they can legally - I thought that's what we were all trying to do?

Which brings me to the last part of the story. The $22K repaid to Medicaid when house was sold was a medical expense, but can it be deducted anywhere? Parents can't deduct it - they died a year before the money was paid. Clients can't take the deduction since parents aren't their dependents. I guess it would go on an estate return, but there is no income, so no estate return. I guess you and I and the rest of the taxpayers won't have to pay the "tax savings" on the medical deduction.

Thanks for everyone's help.

[lbbwest]

"I want my clients to pay the least tax they can legally - I thought that's what we were all trying to do?"

We agree on purpose, but appear to quibble about definitions.