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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Valuation of life estate and remainder.

Resolved Question:

Valuation of life estate and remainder. Situation - Widow has life estate in non-income producing house with remainder to heirs. Sold the house this month and need to determine value of her estate. I have read the treasury regs and understand I must use one of the 1457 actuarial tables but I am confused on the interest rate to use. As I understand it I must use the current 7520 federal mid term rate which would be 4.2 There was a similiar question on this site and they used 6.6. In addition someone else told me 6.6 but I have not been able to clarify with them where they got 6.6. Can someone help me or am I just babbling? Thx.
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.


You will use the Section 7520 Interest Rate that is in effect for the month of valucation. That rate is currently 4.2%.

I am giving you a link to the table that shows the historical rates for the Section 7520 Interest Rates directly from the IRS website. You will see that new rates are posted each month, and there was a time back in 1998 when the rate was 6.6%, so the information you found using the 6.6% rate must have been based on an old valuation. The rates in the table I have givien you a link to are the correct rates to use.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.


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Customer: replied 8 years ago.
Reply to Merlo's Post: The following link is a answer from this web site and they used 6.6 even though the time period was in 2004. Is that answer incorrrect. Thank for all of you help and I will accept after this is complete.
Expert:  Merlo replied 8 years ago.

Hello again jblake,

The link which you posted from the older question does not appear to be using the correct rate. The table which that link takes you to is Table S (Single Life Factors) and you should be using that table to find the age of the person, in conjunction with the current rate of 4.2%.

The only thing I can possibly think of where the 6.6% came in to play is that some individual states use a different method of valuation for the life estate, and the rate is based on a 36 month average of the monthly prime rates. They do this for simplicity purposes and usually adjust the rate once each year. I am giving you a link to a bulletin from the Pennsylvania website which demonstrates this method and this may actually be where the info came from. But for federal purposes you should be using the current rate of 4.2%.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.