Inherited Property Basis Question

Client's parent passed away Dec 2018. Estate is less than $1MM in assets. Client received property from parent that a local gov't agency has placed an offer on for $200k. Local gov't agency appraised property at $75k but are already under contract for $200k. No other appraisal has been completed.

Two questions:
1. Appears that IRC Sec 2032 doesn't apply here because estate is not subject to estate tax, but is there a way to apply the 6-month rule related to the valuation and count the value for stepped-up basis purposes as the contract price with local gov't agency?
2. If the answer to #1 is no, anything to be gained by having the estate liquidate the property during probate versus distributing the property to Client and have the client later liquidate?

Why is there any significance to the local government agency's appraisal? Vs. the actual price in a market transaction?

Client's parent passed away Dec 2018. Estate is less than $1MM in assets. Client received property from parent that a local gov't agency has placed an offer on for $200k. Local gov't agency appraised property at $75k but are already under contract for $200k. No other appraisal has been completed.

Two questions:
1. Appears that IRC Sec 2032 doesn't apply here because estate is not subject to estate tax, but is there a way to apply the 6-month rule related to the valuation and count the value for stepped-up basis purposes as the contract price with local gov't agency?
2. If the answer to #1 is no, anything to be gained by having the estate liquidate the property during probate versus distributing the property to Client and have the client later liquidate?

Seems as though a government offer of $200K would be a pretty darn good FMV to me...willing buyer/willing seller. I'd take report the step-up as $200K.

Above answers probably right, unless fcats arise that make them not right.

What was the date sequence of the death. the appraisal, the offer, and the closing?

What was the purpose of the appraisal? Property tax? Inheritance tax? Desire to buy cheap?

Did anything occur between date of appraisal and date of contract to buy that would explain the increase?

Were there other offers?

Why does the local. government agency want the property?

willing buyer/willing seller

Is it?
Could it be gov't wants the property and says its worth $75K?
Taxpayer says no it's worth a whole lot more; I won't take $75K.
Dickering, threat of lawsuits occurs. Gov't settles on $200K.

As the others are hinting - there's more to the story.

Death was Dec 2018. Appraisal took place in Feb 2019 from local gov't agency. Local gov't agency wants property as it's a key location for new infrastructure development and time is of the essence.

No other offers.

makes no sense. why would agency appraise property? inconceivable that local agency has no oversight and proceeds to pay 200k for property it has said is worth 75k. This, however, has nothing to do with valuation for tax purpose. Basically if no time dependent change in value has occurred sale price is good for basis.

I agree Dennis. Is there any authority I can rely on for this?

You might start with understanding that six month valuation is nothing more than a relief provision for estates where value has dropped from date of death. An arms length sale as much as a year out is often a better reflection of date of death value than a contemporaneous appraisal.

The alternative date would have to be applied to all assets. I would not consider a tax appraisal or "government appraisal" an override to an actual sale that soon after death. I'd go with the $200K.

What authority allows me to use the contract price of the deal?

What authority allows me to use the contract price of the deal?

There is no better comp than the property itself...you have a market transaction proximate in time to the date of death.

Now go buy some paper.

Why would you give any credence to an appraisal by the purchaser?

As Jeff said, no better comp than the property itself.

sjrcpa, your description is a willing buyer and seller.