Q: Can the beneficiary get the stepped-up basis if an executor sells the house through the estate?
I am executor and beneficiary to a rental house. I want to sell it to the current tenant. I want to avoid capital gains liability. If I sell the house through the estate now as executor versus waiting for it to be transfered into my name and then sell it, will the estate then be liable for the capital gains? Or can the estate use the stepped-up fair market value as well? The tenant is highly motivated to buy the house now so I'm trying to sell it as fast as possible through the estate but only if there's not a capital gains implication.
A: The estate has a stepped up basis and can sell it and avoid capital gains assuming the net sale proceeds are equal to or less than the date of death value. If instead the estate distributes the house to you and then you sell it, the result is the same. You will get that same stepped up basis. Selling through the estate can go quicker if you as executor already have the authority to sell and convey. Check with your probate attorney on that or check with a title company first to be certain.
Marie-Yves Nadine Jean-Baptiste agrees with this answer
A: On the death of the owner, the property's tax basis is raised to the FMV of the house as of that date. Therefore, whether the estate sells the property, or an heir sells it after distribution from the estate, is irrelevant. Both get the same tax basis. In Maryland, the Register of Wills only accepts two types of date-of-death valuations for real property, at the option of the peronal representative: (1) the property tax assessment for the most recent year tax assessment made before the owner's death; or (2) a date-of-death appraisal performed by a certified real estate appraiser ("certified" real estate appraisers are certified by the state of Maryland; you cannot just use a real estate agent performing a property comparison unless they hold the state certification). As you can imagine, the tax assessed value will almost always be less than the fair market value performed by the real estate appraiser; therefore, you will want a certified real estate appraiser to perform the valuation because you want the tax basis to be as high as possible. You need to make clear to the certified real estate appraiser that it is for an estate matter, and you need that valuation as of the date of death, not the current value today (which only the buyer's lender will want). You seem unusually concerned about having a capital gains tax. I hope there is such a tax--it means the property went up in value from the date of death and there will be more money for the estate and for you upon its sale! The tax is only imposed on the difference between the higher sales price and the date-of-death appraisal. If you have already used a tax assessment valuation in the inventory or in the first accounting and not a certified real estate appraisal, then you will need to file an amended inventory or account and attach the new appraisal.
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