Capital Gains and Losses

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How do you arrive at a Step up cost basis for property inherited that has been in the family since the early 1920s

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My mother inherited property in Texas in the Permian Basin. She had no way of knowing what it was worth in terms of mineral rights. She passed after she settled my grandfather's estate but incorrectly valued the property based on surface use. It looks like 2018 calls for a 20% penalty on Step Ups in Cost over and above the basis at the time of inheritance. We recently sold the property for mineral rights. How do we Step Up the cost basis to get a fair cost basis vs selling prices?

Submitted: 2 months ago.Category: Capital Gains and Losses
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Answered in 33 minutes by:
3/22/2018
Tax Expert: TaxRobin, Tax Preparer replied 2 months ago
TaxRobin
TaxRobin, Tax Preparer
Category: Capital Gains and Losses
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Experience: 15+ years in Tax preparartion as well as Instructor for tax law, theory, and application
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Tax Expert: TaxRobin, Tax Preparer replied 2 months ago

When yo r mother inherited she received a step up in basis to the Fair Market Value (FMV).When she passed away so did you. You need to look back to the date your mother passed away to see what the mineral rights were worth then. Texas has been tracking these for a while so look to the historical data for the county in the year your mother passed away.

That is your cost basis. Start at the county courthouse.

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Customer reply replied 2 months ago
I think that cost me about $40. No disrespect but I was looking for something more substantive. Of course I would look to find valuation from public tax records but the people I deal with in Reeves County say that there is no good source of what Mineral rights are really worth. There is no MLS per se for property other than taxes based on the land itself. The surface rights or undeveloped land is not taxed at a rate that takes into account potential of mineral rights. I would need to find adjacent properties in the area that had sold the mineral rights for some number per acre and make the argument to adjust up or down based on recent sales. My understanding is that those sales are not recorded or not available in the public records.So my question is really more about defensible Step Ups based on Offer letters to purchase from reputable companies over about a 10 year period.
Tax Expert: TaxRobin, Tax Preparer replied 2 months ago

You must start with the fair market value on the date your mother passed away. You will need to research the basis or you can claim $0.

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