FMV of property and a Quit Claim Deed

Technical topics regarding tax preparation.
#1
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I'm going to be meeting with the client of my friend who is a real estate agent with the goal of discussing the FMV of a piece of property and what taxes she can expect on this property. The property is a lot in Honolulu, no buildings on it.

What I know is this:

MR was named the successor trustee to a trust dated in 1991 and inherited the property via the death of the trustee. I'm not clear on the date of death at this point. I'm also not sure there is a record of the FMV at the DOD. So if there is no record, how do we establish that?

In 2004 MR filed a Quit Claim Deed conveying title to PM, her sister, for $100.

Now PM wants to sell the property. Will her cost basis be the DOD FMV plus the $100? or will it be $100? (added as an edit) I just found an article, and I believe PM's basis will be MR's basis plus $100, and the property will be considered a gift to PM from MR, which supports the fact that PM's basis is the DOD valuation, plus the $100. MR should probably have filed a gift tax return, but she is not who I am going to be speaking with.
 

#2
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actionbsns wrote:So if there is no record, how do we establish that?

In the normal way, with a licensed appraisal. Or, if reasonable, with sales price adjusted by credible evidence of market change since DOD.

actionbsns wrote:Will her cost basis be the DOD FMV plus the $100?

I would say DOD value (that is, gift basis) MINUS the $100, assuming she actually paid it which I would guess she didn't.

But I would back up first and look at that so-called inheritance. Property held in trust does not get a basis step up just because the trustee dies.
 

#3
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"But I would back up first and look at that so-called inheritance. Property held in trust does not get a basis step up just because the trustee dies."

That's not what I have read, 4 Seasons. Can you clarify why the property would not receive a step up in basis when the trustee dies?

RE: The DOD value - how do you get a licensed appraisal at the DOD if one doesn't exist? I'm not concerned with the current FMV which will be easily established. I'm concerned about being able to establish the DOD FMV for some date in years past, at least as far back as 2004. If there are no documents, then how do we establish what it would have been?
 

#4
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actionbsns wrote:why the property would not receive a step up in basis when the trustee dies?

Well, if it was a living trust or a grantor trust the trustee might have been the owner. Original post doesn't explain that. Nor does it clarify whether the successor trustee was also the beneficiary who received the property in distribution from the trust. It may be so but it's not clear to me. For all original post says, property might have been put in irrevocable trust prior to death.

actionbsns wrote:If there are no documents, then how do we establish what it would have been?

This is not difficult; any regular real estate appraiser could handle it. What is an appraisal anyway? Check contemporary sales records for similar property.
 

#5
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4seasons is correct. You need more info on the trust and the chain of ownership of the property.
 

#6
Nilodop  
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The basis for determining gain and the basis for determining loss of property acquired by gift are determined as described in section 1015(a) and they can differ. I'm not sure what 4S is getting at re I would say DOD value (that is, gift basis) MINUS the $100.
 

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[In 2004 MR filed a Quit Claim Deed conveying title to PM, her sister, for $100 quote]

That would be treated as a gift or a partial gift/partial sale. If partial sale then basis is greater of amount paid or transferor's adjusted basis at time of transfer, see Section 1.1015-4(a).

So in this case you need to determine the "adjusted " basis of the transferor at time of transfer in which there are many unknowns.

"MR was named the successor trustee to a trust dated in 1991 and inherited the property via the death of the trustee."

Did trustee bequest property to MR?
Was a life tenancy or remainder man involved?
Was there any improvements or other basis adjustments in the hands of MR?

The courthouse should have records of how the deed was passed from 1991 decedent to MR if no other record is available.
 

#8
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Thanks everyone for your help. Interesting development here. I spent so much time yesterday reviewing the few documents my friend provided, brushing up on what I need to know to meet with this client and understanding some of the comments made here. My friend asked in an e-mail what I would charge for the consultation, I quoted my hourly rate, now, silence. If I charged for my time spent researching the issues, the bill would be a lot more. Oh well, I learned some stuff, and know where to find some answers I might not have known. Just interesting that evidently the information to the client doesn't seem to be worth much.
 

#9
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Just bringing this to the surface so I can print it out when I get to my office. After a year and half of silence on this issue, the realtor now wants to meet with this client and discuss all of this because I guess escrow is closing soon. I have no idea where my original notes are - probably trashed when I moved last fall since they never indicated an interest in moving forward. Pretty sure I'm going to turn this down and I'm wondering why this person isn't seeking the guidance of her own tax counsel. This shouldn't be the realtor's responsibility.
 


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