Cost Basis

[Mary M]

2018 Mr Smith buys house for 88k in his own Trust's name. 

2019 Mr Smith transfers house from Trust and records deed in his name AND add's my client's name to Deed.  

2021 Mr Smith dies.  Client finds out his name is on deed after death.  Client sells house for 140K.

Client receives 1099-S.  What should I be using as cost basis on the sale? 88K?  FMV at date of death?

Never had this situation before and need some help and guidance.

Many Thanks!!!

[sjrcpa]

I assume it was a Grantor (Living) Trust?

Since your client did not know about it, Mr. Smith may have added your client's name "for convenience". Then your client gets dod FMV as basis.

On the other hand, if Mr. Smith intended to make a gift to your client, more info is needed.

How was it titled? Joint w/ right of survivorship? Tenants in common? Transfer on death? How much of the property was included in Mr. Smith's estate? What was shown on the Probate filings? Your client's basis may be Mr. Smith's basis, or it may be a portion of Mr. Smith's basis and a portion of the dod value.

[Mary M]

2018 John Smith, John Smith Revocable Living Trust purchased house.

2019 John Smith, John Smith Revocable Living Trust (seller) did a Intrafamily Transfer and Dissolution changing deed to John Smith, My Client (buyer).

2021 Smith dies, client finds out house is his.  Taxpayer/Client sells house.

Mr Smith purchased two house(s) his and the one next to it.  Mr Smith's residence was in his Trust.  This house was not in trust.  Was it a gift?  IDK.  Yikes.  Am I past help?

PS Thank you, thank you so much!!

[qbteachmt]

"to John Smith, My Client (buyer)"

This means "sold the house" to your client?

When you change the material facts, you change the picture.

I doubt he was surprised when he "found out" in 2021 that the house he was buying was his. That's why you would be buying it.

"Mr Smith purchased two house(s) his and the one next to it. Mr Smith's residence was in his Trust. This house was not in trust. Was it a gift?"

You changed to Buying. Was there a mortgage or note payable agreement? Was someone paying someone?

Did you want to answer the rest of sjrcpa's questions? Look to the legal documents.

[Mary M]

"2019 John Smith, John Smith Revocable Living Trust (seller) did a Intrafamily Transfer and Dissolution changing deed to John Smith, My Client (buyer).

No. In 2019 the house was not sold it was a Intrafamily Transfer and Dissolution changing the deed/title fromMr Smith,  Mr Smith's Trust (indicated as seller on deed) to Mr Smith, Taxpayer/Client (indicated as buyer on transfer deed).

Taxpayer/Client had no idea he was on this house that Mr Smith bought.  It DEFF was not in Mr Smith's Estate at all.  My Client's name was on deed since 2019 apparently, Mr Smith died, client found out and sold house.  My Client did not know till Mr Smith died that his name was on this house.

[Mary M]

PS there was no mortgage.  Mr Smith paid cash for both houses in 2018.

[taxes96786]

My Client's name was on deed since 2019. Was the deed transferred on the 2019 date or was client just named as part owner in the trust. You need the wording in the trust and the percentage stated on the 2019 deed to determine FMV for the final sale. If both parties were named as owners in 2019 documents then % of FMV on date of Deed/Trust transfer would be for client and % of FMV at date of death would be added together to get the accurate FMV for the sale.

Everything depends on the wording in the Trust and 2019 Deed documents.

[qbteachmt]

"PS there was no mortgage."

Not for the initial purchase; for this: "2019 John Smith, John Smith Revocable Living Trust (seller) did a Intrafamily Transfer and Dissolution changing deed to John Smith, My Client (buyer)."

There is either a sale or a gift.

It doesn't matter what your client knew or didn't know or was surprised. That is extraneous to the situation, because it has no impact.

As pointed out, you need to legal documents; then, follow the timing. So far, it seems there would have been a Gift Tax issue in 2019, and there is no step up in basis. If your client is the only name on the deed since 2019, he uses the basis given to him.

[Mary M]

Update!  Thanks for your continued patience with my confused self.

Warranty Deed from 2019 reads "as joint tenants with full rights of survivorship"

So, my client uses cost basis of 50% of 88k? or 50% of FMV at DOD of $135k? Am I still missing a piece to solve this puzzle?

Client finds out he owns property next door to Mr Jones after Mr Jones dies. Is it a gift? Who knows what Mr Jones meant it to be.  Is there issue with gift tax in this situation? Now it's not just a BIG shock, he has to pay gift tax on it because Jones neglected to do so? 

Thanks so very, very much for your insights and help.

PS I am actually confusing myself more not less at this point. Ugh!

[Mary M]

How was it titled? Quick claim deed 2019 no cost just transfer.

Joint w/ right of survivorship? Yes

Tenants in common? No.  Joint Tenants with right of survivorship.

Transfer on death? IDK? Right of survivorship.

How much of the property was included in Mr. Smith's estate? None

What was shown on the Probate filings? No probate for this property.

Your client's basis may be Mr. Smith's basis, = 88k purchase in 2018?

or it may be a portion of Mr. Smith's basis and a portion of the dod value (135k). Not sure what to use still as cost on sale. Am I missing something obvious here?

Help!  Thanks SOOOOO much!!  

[sjrcpa]

The recipient of a gift does not pay gift tax on it. The giver does. How wealthy was Mr. Smith? Back then he had a lifetime gift and estate tax exemption of at least $5 million.

Can you get in contact with whoever handled Mr. Smith's estate and/or the transfer? See if a gift tax return was filed? Did he discuss with his lawyer the purpose of the transfer?

[sjrcpa]

"How much of the property was included in Mr. Smith's estate? None"  How do you know? Did you see the Inventory?

"What was shown on the Probate filings? No probate for this property." That makes sense. Jointly owned property w//right of survivorship does not go through Probate.

"Am I missing something obvious here?"  No. This is confusing.

[Mary M]

"How do you know? Did you see the Inventory?"

This property was only asset NOT in Mr Smith's estate.  He quick deeded it out of his estate and into him and my client's name in 2019.  My client had ZERO to do with the estate or sale of any other assets.

There is apparently no way for client to find out if Mr Smith paid or didn't pay gift tax. He did not gift anything to anybody before his death.  He just did the quick deed on this property.

No clue what to use for FMV on this sale. <sigh>

"Why, me Lord" by Shaggy

[BobKamman]

The word is QUIT, not QUICK.  But Mr Smith was probably a do-it-yourselfer who didn't know that either, and it doesn't matter.  

I did a search and found something that says "An intrafamily transfer & dissolution is a deed that transfers ownership from one family member to another. Dissolution occurs usually in the case of a divorce, where ownership is transferred from the couple to just one person."

So were your client and Mr Smith related?  Were they ever married?  Not that it matters.  We're just curious here.  

Ignore this chatter about estate taxes and gift taxes, those are just for rich people.  Had the property been sold during Smith's lifetime, intent would matter.  It was JTWROS, he died, the basis is FMV at date of death. 

Are you sure Smith was Mr?  Was there an autopsy?  Not that it matters.  We're just curious here.  

[qbteachmt · Accepted solution]

"He did not gift anything to anybody before his death."

Yes, he did. You need to look at Timing.

"Client finds out he owns property next door to Mr Jones after Mr Jones dies. Is it a gift?"

It was Gifted in 2019, according to what you are telling us.

"He just did the quick deed on this property."

Yes, that is how he gifted Value to your client.

"No clue what to use for FMV on this sale."

You had no sale, in 2019. There is no applicability of FMV.

"Joint w/ right of survivorship? Yes"

Then your client inherited 1/2 at the FMV, and it seems the client's sale is timely to the DOD, so use that sale price for FMV.

"My client had ZERO to do with the estate or sale of any other assets."

You keep stating things on both sides of the fence, and either they both don't apply, or they both do apply. That is confusing us.

"Who knows what Mr Jones meant it to be."

It is either Sale or Gift, in 2019.

"Is there issue with gift tax in this situation? Now it's not just a BIG shock, he has to pay gift tax on it because Jones neglected to do so?"

Gift tax is the responsibility of the Giver.

You've brought a lot to the topic that does not apply. You need to narrow down to what applies and drop all this other stuff. There is a lot of protesting going on, for who didn't know what, and that doesn't matter. What IS and what legally exists, is what matters.

The probate and estate documents will be helpful. The legal papers matter. What someone else remembers or thinks or intended, does not matter.

[qbteachmt]

Oh, for this: "This property was only asset NOT in Mr Smith's estate. He quick deeded it out of his estate and into him and my client's name in 2019. My client had ZERO to do with the estate or sale of any other assets."

You are confusing Trust and Estate.

Yes, a JTROS means the house was partly his and that part would be part of his Estate.

Yes, it no longer was in the Trust, because it was deeded/titled to individuals.

[Mary M]

As curiosity killed the cat and this is a busy time for all of us...

Yes, Mr Smith was a man.  Yes, he deff died.

No, my client and he were not married or related.

My apologies and please, excuse my own "do it yourselfer" self for any offense in my typing quick vs quit re: deed and giving too much information that was not necessary in this thread. 

This issue is very complicated and maybe once in a lifetime for me and my client.  IF I ever run into this situation again will be sure to send client to BobKamman.

Thanks SO very much Folks for your input, patience and help.  Appreciate your time.

20 days and counting till 4/18!  Woot!

[BobKamman]

No, that is not what JTWROS means.  Code Section 2040 means that the ENTIRE property would be included in his taxable estate (not probate estate, which is irrelevant  here).  That means that the only number needed for cost basis is FMV at date of death.  This is a simple question but the path to its answer here has been littered with red herrings, and @Mary M 's client appears still at risk of paying too much tax.  

[Mary M]

"That means that the only number needed for cost basis is FMV at date of death."

Sorry, to cause all these words in this here thread, Folks!!!! Red herrings? yuk I do not even like fish 😉

Thank you, thank you, thank you!!!!

The End.

[BobKamman]

It's people like you who are responsible for my not being able to get anchovies, just because the teen-agers who work at pizzerias don't like handling them.  

[qbteachmt]

Bob's right about JTWROS. I was thinking that, as two individuals, it was TIC, and forgot some of the earlier details.

There is nothing hard or unusual about this, other than, you would strip out everything that does not apply.

Example:

You and I are not related. We are roommates, and buy a house together. As JTWROS, when one of us dies, the whole thing belongs to the other person. As Tenants in Common (more typical for unrelated parties), the one who dies has half-a-house in their estate, and now the one who did not die owns a house together with someone elses' parent/sibling/child/friend, because we didn't think this through.