Madison Heights, MI asked in Real Estate Law and Tax Law for Michigan

Q: cost basis when selling property that has been owned by family for 90 years. Purchased by Grandparents in 1930's.

A Deed was recorded in 1978 joint tenancy with rights of survivorship, not tenants in common, to grandmother and her 4 children. Grandmother and 2 of the children are now deceased. Last year new QC deed to just my mother. She is now planning on selling. how is cost basis and capital gains figured? does the date of each death figure in to cost basis? The property hasn't been valued or appraised in all this time.

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2 Lawyer Answers
Brent T. Geers
Brent T. Geers
Answered
  • Grand Rapids, MI
  • Licensed in Michigan

A: It can get complex, and it depends on whether transfer affidavits and PRE exceptions were properly completed and filed along the way. Sounds like there would be an argument that there hasn't been a uncapping event at least since 1978.

James L. Arrasmith
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Answered
  • Tax Law Lawyer
  • Sacramento, CA

A: This is a complex situation involving multiple transfers and deaths over a long period of time. Here's a general overview of how the cost basis and capital gains might be calculated, but I want to emphasize that your mother should consult with a tax professional or estate attorney familiar with Michigan law for specific advice:

1. Original Basis: The original cost basis would be the price the grandparents paid for the property in the 1930s.

2. 1978 Transfer: When the property was transferred to joint tenancy with rights of survivorship in 1978, this likely didn't trigger a change in basis.

3. Step-up in Basis at Deaths:

- When the grandmother died, her portion of the property would have received a step-up in basis to the fair market value at her date of death.

- Similarly, when the two children died, their portions would have received a step-up in basis to the fair market value at their respective dates of death.

4. Recent Transfer: The quit claim deed to your mother last year likely wouldn't affect the basis.

5. Current Basis: The current cost basis would be a combination of:

- The stepped-up values for the deceased owners' portions

- The original basis (or 1978 value if there was a taxable event then) for the surviving owners' portions

6. Capital Gains: When your mother sells, she'll owe capital gains tax on the difference between the sale price and the adjusted cost basis.

Challenges:

1. Determining Fair Market Value: Since the property hasn't been appraised, it may be difficult to determine the fair market value at the time of each death. A retrospective appraisal might be necessary.

2. Proportions: The exact proportion owned by each person at the time of death could affect the calculations.

3. Improvements: Any improvements made to the property over the years could increase the cost basis.

Given the complexity and the significant potential for tax implications, it's crucial that your mother consults with a qualified tax professional or estate attorney. They can help:

1. Research historical property values

2. Determine the exact ownership structure and proportions over time

3. Calculate the correct stepped-up basis for each transfer

4. Account for any improvements or depreciation

5. Ensure compliance with both federal and Michigan state tax laws

This professional can also advise on potential strategies to minimize tax liability, such as whether your mother might qualify for any exemptions or if a 1031 exchange could be beneficial if she's planning to reinvest in other real estate.

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