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So I read the thread on a GOE post from April 2025.(parvitstax)
In my case, a situation where the Will of the deceased grants an "option" to the designated beneficiary, a 25% discount to market value ( a gift of equity, I believe) to purchase the home of the deceased.
If the beneficiary chooses to exercise the option, I believe the value of the discount ( i.e. GIft of Equity) "would pass to the basis of the beneficiary" ( in addition to their own contribution to the purchase) in the calculation of gain/or loss from any future sale by that beneficiary
Not interested at this time on issues regarding software use or how best to treat on any estate or inheritance tax returns.
Agree/disagree?
Thank you all! Intriguing topic.
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The receiver's Basis is the greater of (a) the amount they paid, or (b) the original owner's Basis.
Due to the step-up in Basis, I suspect that means your client's Basis is the original Estate's Basis (the stepped-up value).
https://www.law.cornell.edu/cfr/text/26/1.1015-4
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Intriguing question. Google AI says the basis is what the buyer pays, so that's probably wrong.
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I don't know if it matters, but what would happen to the house if this beneficiary did not purchase it? Would they still inherit a portion of it?
The more I know the more I don’t know.
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I had the same thought. Seems to me that all the guy inherited was an option. What if he had sold it to someone else? No tax on it, and the buyer's basis would be what he paid for the property plus what he paid for the option. But does that matter?
Suppose the decedent gave the beneficiary a $1 million house. The basis would be $1 million. What if the decedent gave the beneficiary a $1 million house, provided he pay $100,000 to the other beneficiaries? Basis is still $1 million, I would say. So in this case, decedent gave the beneficiary a $1 million house, provided he paid $750,000 to the other beneficiaries. What did he inherit, really?
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my understanding is that it would just be sold by the estate and proceeds distributed equally along with other financial assets.
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Thank you all!
I did completely miss the idea of stepped up basis, in which case the offer of "gift of equity" seems moot in the case of inheritance.
However, according to his mother he( personally) is not actually inheriting the house. Because he's considered to be "more needy" than other siblings, he's being given the option to buy the house for a discount, if he can afford it at the time of her death.
Would I be completely be off base if I suggest to the client ( the mother) that "if he does exercise the option", its likely the mortgage company would acknowledge the GOE in their approval and.wouldn't that support that the value of the GOE plus his personal mortgage liability, plus any other down payment comprise his basis for any future sale of the property?
Thank you all again for all of the insights. Great forum!!
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@jnd2546 wrote:
its likely the mortgage company would acknowledge the GOE in their approval
and.wouldn't that support that the value of the GOE plus his personal mortgage liability, plus any other down payment comprise his basis for any future sale of the property?
While I agree that the mortgage company would likely allow the Gift of Equity and he may be able to avoid Mortgage Insurance because of that, you should tell the client to consult the mortgage company about it. Unless you are an expert in mortgage lending, be careful about telling a client if it is "likely" or not.
The rest of that doesn't matter. The Regulation says what their Basis is.
