RE Attorney

[JackBull]

Sold parents home last week. My siblings and I had inherited. Brother was executor. On the Federal and state tax forms for each of us the RE attorney used brothers address. I say it should be corrected to prevent questions from the IRS or state, my brother says no need to. Of course his address is correct.

Thoughts?

 

[hittman]

1. I would always ask an attorney just to make myself feel better.
2. You probably won’t convince your brother of anything.
3. He is the Executor with certain legal obligations HE is responsible for.

 

[dweis]

Are you asking about an inheritance tax form? If so, I think the executor’s address is correct, but I am not an attorney. I agree with @hittman — call the attorney who filled out the form.

 

[turd]

Right to call the attorney, each state has their own income tax laws. Unless you live in a state with NO income tax, like South Dakota.

 

[gramps]

I have no idea what an RE attorney is?
gramps

 

[JackBull]

Was planning on contacting the attny but since that office made the error they might not be willing to make the change. Time is money.

 

[nvbirdman]

RE attorney is real estate attorney.

 

[Johnny-Baseball]

Key questions: How much time elapsed from your parents' death until the home was sold? What was home's FMV at date of their deaths? What was total value of home at date it was sold? These are issues.

My father was the last parent to die. As executor, I sold my father's home and distributed the net sales proceeds in accordance with my fathers' will. FMV at date of death was same as FMV at date of sale (only 4 months' time had elapsed). So...no "taxable gain" on sale of home (from date of father's death until date home was sold). Total value of home was less than $500,000, so (a) father's estate owed no inheritance taxes, and (b) inheritance to all beneficiaries was NOT taxable to beneficiaries. We converted all of my father's other asset into cash months prior to his death (that is a key action to take - if you have advance warning of the pending death). Therefore his estate's only assets at the date of his death were the home and "liquid" assets, which made managing the income tax issues and estate tax issues much simpler.

I prepared and filed the federal income tax returns for my father and for his estate tax. All very straightforward. (TurboTax or similar software would be helpful. So was Google.) [Full disclosure: I am a retired CPA - 40 years' experience - all as an auditor and/or company CFO. So I am not an income tax/inheritance tax specialist. My "general" familiarity with federal and state income/inheritance taxes gave me confidence I was capable of doing this myself without professional assistance.]

Now...that was in Texas. I can't address what the income and inheritance taxes might be in other states. So, at a minimum consult a knowledgeable CPA. I did not need an attorney for anything. Title company handled all title documents, etc. YMMV.

 

[BearBiologist]

Before I went back to college, I spent 25+ years in the Title Insurance field. As such, I often advised RE attorneys regarding TITLE issues (worked as an Expert Witness while in college for a while). Our policies were geared to follow the safest way and designed so as to stay OUT of court!

IF it was an error, the attorney would bill your brother for fees (They relied upon him for the information). If they made the error, I would think they would correct it for free so as to avoid a complaint to the bar association.

In most cases, the estate would have held out sufficient funds to pay any taxes because the state would file a lien against the property, most likely.

In short, for peace of mind, I would check with an attorney in the state where the property is!

 

[David Lee Valdina]

I think upon death the value of the house is reported on the Estate Tax forms and any Capital Gain escapes Capital Gain tax. The Executor's address is the correct contact.

I add to this because of Johnny Baseball's post #11, below. What I said is correct in that the Estate Tax return uses the house's value at the time of death. I did not discuss Estate Tax returns and financial obligations of the Estate. For sales taking place later, there can be changes in value, up or down and what he discusses is important. Lastly for background, I am still an attorney but at age 80 have lost my appetite to do any more law work.

 

[Johnny-Baseball]

I think upon death the value of the house is reported on the Estate Tax forms and any Capital Gain escapes Capital Gain tax. The Executor's address is the correct contact.

Well that's not exactly correct. The house's conveyance to the heirs does NOT trigger any income tax at all. BUT, depending on the dollar value of the deceased's estate, the estate might owe estate taxes to the federal government (I'm ignoring state income and estate tax consequences since each state has its own unique tax regulations for inheritances). The estate's SALE of the house might, or might not, trigger income taxes. And those income taxes might, or might not, be taxed at (a) ordinary income tax rates, (b) short term capital gains tax rates, or (c) long term capital gains tax rates. For example - my dad died in April 2017 (he did, in fact) and his executor (me) fixed up and sold his house within 60 days. We determined that the $350,000 fair market value of the house at the date of dad's death was exactly the same as it was 2 months later when we sold the house. So the estate did not recognize a gain or loss on the sale of that house. However, if I had waited a full year - April 2018 - to sell the house, and if I sold that house for $450,000, then that $100,000 increase is income that would have been reported as taxable income on the Estate's federal income tax return. If the sale occurred less than 366 days after dad's death, then any taxable income would have been reported as a short-term capital gain. If the sale occurred 366 or more days after dad's death, the taxable income would have been reported as a long-term capital gain. Exactly the same as if my father held $350,000 of stock at the date of his death and the estate sold that stock later for $450,000. The stock's "inheritance basis" was $350,000. Any gain on sale of that stock is income to the estate. Any loss is a loss to the estate.

[Note: capital gains taxes would apply to profit on the house sale only if the house was a "qualifying asset" for purposes of capital gains treatment. All of this is facts and circumstances-specific - likely deeper water than TurboTax can fathom.]

 

[nrobe50]

Any free advise you get is worth exactly what you paid for it.

 

[kmoore]

Silly to ask such questions and make decisions based on these answers. Ask the lawyer, pay the lawyer. Or let your brother deal with it.
This is what I did and it worked for me in Oregon. Will it work for you who knows.

I was the executor. I have 2 others who inherited the estate. At date of death home was appraised by a real estate agent at xxx,xxx. 10 months later it dropped in value and was sold for 35,000 less. Escrow used all three for direct pay out. Each had their address and SS number attached to the sale. We each got around 62,000 on the sale. I claimed the loss myself and took the max loss allowed each year. It worked fine, never any questions asked from IRS. In 2007.

 

[David Lee Valdina]

Well that's not exactly correct. The house's conveyance to the heirs does NOT trigger any income tax at all. BUT, depending on the dollar value of the deceased's estate, the estate might owe estate taxes to the federal government (I'm ignoring state income and estate tax consequences since each state has its own unique tax regulations for inheritances). The estate's SALE of the house might, or might not, trigger income taxes. And those income taxes might, or might not, be taxed at (a) ordinary income tax rates, (b) short term capital gains tax rates, or (c) long term capital gains tax rates. For example - my dad died in April 2017 (he did, in fact) and his executor (me) fixed up and sold his house within 60 days. We determined that the $350,000 fair market value of the house at the date of dad's death was exactly the same as it was 2 months later when we sold the house. So the estate did not recognize a gain or loss on the sale of that house. However, if I had waited a full year - April 2018 - to sell the house, and if I sold that house for $450,000, then that $100,000 increase is income that would have been reported as taxable income on the Estate's federal income tax return. If the sale occurred less than 366 days after dad's death, then any taxable income would have been reported as a short-term capital gain. If the sale occurred 366 or more days after dad's death, the taxable income would have been reported as a long-term capital gain. Exactly the same as if my father held $350,000 of stock at the date of his death and the estate sold that stock later for $450,000. The stock's "inheritance basis" was $350,000. Any gain on sale of that stock is income to the estate. Any loss is a loss to the estate.

[Note: capital gains taxes would apply to profit on the house sale only if the house was a "qualifying asset" for purposes of capital gains treatment. All of this is facts and circumstances-specific - likely deeper water than TurboTax can fathom.]

See my addition to my original post please. David

 

[Johnny-Baseball]

See my addition to my original post please. David

David,

I believe you and I are saying about the same thing.

Let me recap some of what I learned about an Executor's administration of an estate.

The deceased must file a Form 1040 income tax return for that "stub" period from January 1, 20XX through the date of death. If date of death is April 17, 20XX, then the income tax return will report all income and expenses from January 1 through April 17. On April 17, the assets owned by the deceased automatically become assets of the deceased's estate (the "Estate"). The Estate must file its own income tax forms (on Form 1041) beginning with the period April 17. The Estate must file a Form 1041 tax return for each calendar year the Estate exists. The Estate ceases to exist in the year during which all of the Estate's assets are distributed (in accordance with the will) and the Estate's liabilities are paid. If the Estate's net assets exceed a certain value ($11.7 million as of 2021) the estate must also file an estate tax return (which would determine whether estate taxes would need to be paid). This means if an estate's net assets are LESS THAN $11.7 million, then no estate tax must be paid.

The value of the deceased's house (at date of death) becomes the home's value to the estate.

Estates must file a Form 1041 income tax return for each year the estate exists. Included on that tax return are all income and expenses of the estate. If an estate sells a home that the estate owns (e.g., the deceased's house), then the estate Form 1041 must report taxable income on excess of the net sales price MINUS the fair market value of that home (FMV). FMV equals the market value of the home on the date the deceased died. That's why it is important to get an appraisal at the date the deceased dies. As one poster above noted, it is possible for a home's value to decline from the date the deceased died until the date the home was sold. In such cases, that year's estate tax return will report a loss on the sale of the home. Alternatively, a home sales price that exceeds the home's FMV will result in a gain on sale of the house, and that year's estate tax return will report that gain as taxable income.

Taxable gain (or loss) on the sale of the Estate-owned home (most likely) will classified as a capital gain (or loss). Capital gains from sales of assets held for less than one year are taxed at "short term capital gains tax rates - essentially ordinary income tax rates." Sales of assets held for more than one year are taxed at "long term capital gains tax rates." TurboTax (for individuals) will likely be sufficient to determine an estate's home-sale-related-capital-gains-tax (except for unusual circumstances). [Nasty surprise - in some cases the Long-Term Capital Gains tax rate might be higher than the ordinary income tax rate.]

An attorney (and preferably one who is also a CPA) can guide you through "planning strategies" that might benefit the heirs of the estate. But most of these planning strategies must be implemented prior to the decedent's death. For example, selling all stocks and other assets would cause the gains and/or losses on those sales to be reported in the deceased's personal tax return. That might provide a better "tax cost" answer than having those assets sold by the Estate (in the main to avoid inheritance taxes, etc.). But again, this gets into the income tax and death tax laws unique to each state - another reason to have an attorney/CPA involved.

In Texas (at least) a deceased's "real property" assets must go through a court-supervised probate process - a process that requires an attorney. The probate count issues documents that transfers the legal title to all probated assets in accordance with the deceased's will. Liquid assets (e.g., cash) are excluded from the probate process. This is another reason why it may be advantageous for sales/dispositions of assets to be made before the deceased's death. Bank accounts and many brokerage accounts have a transfer on death ("TOD") clause that automatically transfers custodial responsibility for such assets to pass to the executor - WITHOUT HAVING TO FIRST GO THROUGH PROBATE. The TOD asset provisions give the estate's executor/administrator access to cash that can be used to pay for home repairs, pay off liabilities (e.g., medical bills), etc. much more rapidly than if those assets were trapped by the probate process.

[My father, sister and I sat with dad's banker so dad could elect the TOD provisions in dad's banking accounts - months before his death (he had terminal cancer, and we knew he had only a few months to live). Until dad knew he had only a short time to live, he was unwilling to have this discussion with us and his banker. So, this was a necessary, but unpleasant activity for all of us.]

Finally, I differentiate between an attorney's work and a CPA's work. Why? Many attorneys prefer NOT to screw around with the numbers. For such attorneys, they'd recommend the executor use a CPA (in addition to the attorney), which generally is a less efficient answer (i.e., cost more in professional fees). The best professional advisors help the deceased and his/her designated executor/administrator build a financial model (e.g. spreadsheet) that shows what the deceased's estate and income tax consequences might be under varying scenarios. That would give the deceased and his (her) designated executor an opportunity to implement "value-preserving" strategies prior to the deceased's date of death.

Sorry for the many words. Much of this can be learned by purchasing 'estate taxes for dummies" type books - particularly the vocabulary definitions and the processes/mechanics of preparing income tax and estate tax returns. Better to be a knowledgeable executor than not.

I was the high school and college friend of a guy who is a CPA (and former IRS agent). In exchange for cups of coffee, he and I worked through the "planning opportunities" related to my father's estate (before dad died). Of course, it helped that I was a 40+ year CPA (even though income/estate taxes were not my specialty). My sister (one year older than me and the holder of a PhD in English) was clueless about these things and essentially delegated 100% to me all of the executor's responsibilities. [Full disclosure: she and I shared 50/50 in dad's estate, and I charged $0 for performing my executor responsibilities. So the trust between us - plus our agreement that she and I jointly and proactively review all decisions, tax filings, etc. - allowed this to go smoothly.]

Finally, I must admit that my proactive involvement as his estate's prospective executor/administrator allowed my father and me to "say goodbye." So my grief at his death was very brief.

As with all other things in life, YMMV.

 

[Colonialgirl]

AND it all sounds like the Federal Government (and state) going OINK OINK OINK to gain money they had no to claim because they had NOTHING to do with the increase.