Washington, DC asked in Real Estate Law, Tax Law and Probate for Maryland

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.

2 Lawyer Answers
Nina Whitehurst
Nina Whitehurst
  • Probate Lawyer
  • Crossville, TN

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

Mark Oakley
Mark Oakley
  • Estate Planning Lawyer
  • Rockville, MD
  • Licensed in Maryland

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.

Justia Ask a Lawyer is a forum for consumers to get answers to basic legal questions. Any information sent through Justia Ask a Lawyer is not secure and is done so on a non-confidential basis only.

The use of this website to ask questions or receive answers does not create an attorney–client relationship between you and Justia, or between you and any attorney who receives your information or responds to your questions, nor is it intended to create such a relationship. Additionally, no responses on this forum constitute legal advice, which must be tailored to the specific circumstances of each case. You should not act upon information provided in Justia Ask a Lawyer without seeking professional counsel from an attorney admitted or authorized to practice in your jurisdiction. Justia assumes no responsibility to any person who relies on information contained on or received through this site and disclaims all liability in respect to such information.

Justia cannot guarantee that the information on this website (including any legal information provided by an attorney through this service) is accurate, complete, or up-to-date. While we intend to make every attempt to keep the information on this site current, the owners of and contributors to this site make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in or linked to from this site.