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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11352
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My sister and I recently sold my Mother's house for $40,000.

Customer Question

My sister and I recently sold my Mother's house for $40,000. We repaid the State of Texas $30,000 for a MERP claim. The house was all she had left. We each received a 1099s for $20,000. My question is can we deduct the MERP payment since we did not actually receive $20,000.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

...

I hold a JD (Juris Doctorate, a doctoral degree in the law), concentration in Tax Law & Corporate law, an MBA (specialization in finance & tax), and BBA from Stetson School of Business and Economics, as well as CFP and CRPS designations.

I can help here

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Sorry, no, because this was a recovery of something that should have been available (for Medicaid purposes) the recovery isn't a tax deductible item.

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HOWEVER, because you would have received a step-up in tax basis to the Fair Market Value of the property as of the date of death of your mother, you may not have a taxable gain anyway.

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Assets transferred through inheritance receive a "step-up" in basis to the Fair Market Value as of the date of death .... so that any subsequent sale of the property (especially in today's market where prices (still) are not appreciating) don't generate any gain at all ... SOMETIMES even a tax LOSS

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Let me know if you have questions

Customer: replied 1 year ago.
The 1099s shows that I received $20,000, but I actually received only $4,000 because we paid the MERP claim.
Expert:  Lane replied 1 year ago.

Understand ... but capital gain = sale price minus basis.

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And normally basis is purchase price plus improvements, but HERE, because you inherited, basis is the market value of the home as of date of death.

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So if the property was worth, say, 40,000 on the day she passed and the sales price was 40,000 (your half being 20,000) there would be no taxable gain at all

Expert:  Lane replied 1 year ago.

..Make sense?

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The 1099 only reports the proceeds from sale

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But the What matters here is whether you sold for a gain or a loss

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And since your tax basis is the Fair Market Value as of the date of death of the person leaving you the property...

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Your gain (sales proceeds minus basis) may not be much at all

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And given what real estate prices are doing right now, you may even have a tax LOSS.

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Please let me know if you have questions

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And if this HAS helped, (and you don't' have additional questions) I'd appreciate a positive rating ... Using those stars on your screen

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Thank you,

Lane

Expert:  Lane replied 1 year ago.

Hi,

I'm just checking back in to see how everything's going.

Did my answer help?

Let me know...

Lane