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I have a question regarding stepped up depreciation and

Hello! JA: Hi. What seems to...
Hello!
JA: Hi. What seems to be the problem?
Customer: I have a question regarding stepped up depreciation and being a real estate professional.
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: If a real estate professional purchase beneficial interest in a property can we use stepped up basis?
JA: Is there anything else the Accountant should be aware of?
Customer: For example, a person transfers title to me and and I gave them 2500 dollars to move out. Can I use my basis as the house value?
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Answered in 2 hours by:
2/17/2017
Stephen G.
Stephen G., Sr Financial Expert
Category: Finance
Satisfied Customers: 7,215
Experience: Extensive Experience with Tax, Financial & Estate Issues
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Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

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Are you actually asking if your can use the fair market value of the property as your tax basis or if not, exactly what are you asking.

What type of entity holds title to the property, and who holds the beneficial interest(s).

Steve G.

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Customer reply replied 9 months ago
I am now the beneficiary of the trust. The house is now mine through transfer of title through a trust. Now. I need to know what the basis is? Can I use the stepped up basis of the home value as my basis?

Are you asking what your tax basis in the property in the Trust is as the result of a purchase of the beneficial interest in the Trust?

You'll need to be more descriptive of the transaction.

What type of Trust are you talking about?

Was their a death involved and if so what was the decedent's interest in the Trust?

Are you the sole beneficiary of the Trust?

What are the circumstances surrounding the occupant of the home that you paid $2,500. to move out of the property. Did that person transfer title to you for $2,500.? Did you assume any debt as part of this transaction?

What is the fair market value of the property and what are you going to do with it?

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Customer reply replied 9 months ago
I am asking what the tax basis in the property in the Trust is as the result of a purchase of the beneficial interest in the Trust.What type of Trust are you talking about? An irrevocable trust with a house in it, the trust beneficiary made me the beneficiary as they did not want to deal with the property.Was their a death involved and if so what was the decedent's interest in the Trust? The decedent of trust died then the beneficiary transferred assets to me.Are you the sole beneficiary of the Trust? yes.What are the circumstances surrounding the occupant of the home that you paid $2,500. to move out of the property. Did that person transfer title to you for $2,500.? They did transfer it yes... so they would not have to deal with the property. Did you assume any debt as part of this transaction? Yes, past taxes and bills.What is the fair market value of the property and what are you going to do with it? FMV 100K and am going to fix it up and sell it.

OK, well, not commenting upon the validity of a beneficiary of an Irrevocable Trust transferring title to you for $2,500.

Note:

Only the Successor Trustee (possibly the beneficiary you referred to also), would be able to transfer property within a Trust to someone who wasn't a beneficiary of the Trust).

It sounds like this may have been a Revocable Living Trust that became Irrevocable upon the Grantor's death. At that point, if the Trust were Revocable at the Grantor's death, the real property would have been stepped-up to the fair market value at the Grantor's (Decedent's) death.

That would also be the Tax Basis of the real property, and Irrevocable Trust would be responsible to file fiduciary income tax returns for the Irrevocable Trust to report any income or sale or exchange of the trust property. If the Successor Trustee and the beneficiary of the Irrevocable Trust were one in the same, then depending upon the specific terms of the trust the beneficiary may have been able to direct the disposition of the property as it would be normal for the Irrevocable Trust to provide that the Trust distribute the assets free of any trust to the beneficiary.

Then the question would be whether or not the beneficiary gifted the property to you for a nominal fee plus the assumption of certain liabilities.

If the property was gifted to you, then you would assume the donor's tax basis in the property which would be the fair market value at the decedent's date of death. The gift would require that a valuation be determined as of the date of the gift for gift tax purposes and the gift would be reportable by the donor on Form 709 due at the same time as the donor's income tax return for the year of the gift. That value would not affect your tax basis in the gift, which would continue to be the fair market value at the decedent's date of death plus whatever liabilities you assumed and paid related to the trust property. That would be your tax basis (cost) plus any improvements you make to the property if you sell the property.

So, there is a "step-up" but the "step-up" is to the fair market value at the decedent's death, not the fair market value at the date of the gift which is what is used for gift tax return purposes.

The donor would not have any gift tax to pay, but would be required to file a gift tax return as described previously.

All this depends upon whether or not my assumptions indicated above with respect to the Trust are correct.

I'll be happy to answer any follow-up questions you may have.

Please remember to rate my response as that is the only way that I will receive credit for assisting you today. There's no additional charge for providing a rating; however, if my service exceeded your expectations, the site allows you to provide a bonus for my services; that is always most appreciated.

Thanks very much for using JustAnswer.com

Steve G.

Stephen G.
Stephen G., Sr Financial Expert
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Customer reply replied 9 months ago
Can I ask you one more detail?

Sure, what can I assist you with?

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