On an inherited house what other fees can be included to adjust cost basis

Forum|Forum|3 years ago
August 21, 2022
2 replies
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Hi, I inherited my mother’s home as the sole beneficiary and also the executor of the will.

The house is paid off and the prices go for around $250,000-290,000. I will be selling the house quickly as soon as the summary probate is completed. I hired and an appraiser to provide the stepped up basis at Time of death.

Question- Is the appraisal fee, title fees such as title insurance for buyer, title search, state document fee/taxes, title office fees, HOA fees, house taxes, insurance for home, and utilities
Can be included in basis? Also what about probate costs for filling out the paperwork and the courts filing fee?
Just want to make sure also the only form I fill out for the sale of the home is IRS form 8949

in the year sold?

Not A Product Question

Bsch4477

As you are aware, the cost basis of the home is its value at the time of the decedent’s death. Since the selling price, if obtained soon after that death, is a true indication of the home’s value, that figure is more accurate than that of an appraiser. Since you receive all of the net proceeds tax free because it is an inheritance, the other costs are not relevant to your tax situation because there is no effect on your income from the sale. You would only report the home sale if you receive a 1099-S. Since you have no tax liability for the income from the sale the realtor might not initiate that form if they understand the circumstances.

Note that this reply deals only with your situation and not any possible estate tax liability.

ee-ea

The answer by Bsch4477 does not deal with inheritance taxes in IA, KY, MD, NE, NJ, and PA either.

Opus 17

You start with the fair market value on the date your mother died. This can be established by an appraisal.

You can add permanent improvements you pay for, but not minor repairs that are part of selling the home (cleaning, painting etc.)

Certain closing costs from your sale will be allowable adjustments to the basis. They are listed on page 8 of publication 523 and include the real estate commission and some (but not all) taxes and fees associated with the sale. https://www.irs.gov/pub/irs-pdf/p523.pdf

Staging expenses are an allowable adjustment (considered a selling expense as "advertising"), but only as long as they do not make any changes to the home itself. In other words, renting furniture and moving it in and out, without changing the home, is an allowable selling expense and adjusts the cost basis. But painting, changing light fixtures and so on, is not staging, and is either a repair (allowable adjustment) or a repair/maintenance item (not allowable adjustment).

HOA fees, property taxes, insurance and utilities are never** adjustments to cost basis. Property taxes for property you own are deductible on schedule A as an itemized deduction, subject to the overall $10,000 cap on deducting state and local taxes.

Note that if you get a 1099-S for the sale, the IRS is going to try and match that to your tax return. So while the ordinary way to treat selling expenses is to reduce the selling price, it confuses the computer and may result in a letter. Assume the FMV is $250,000, the selling price is $270,000, and you pay $9000 in allowable closing expenses. The IRS will want to see you report a selling price of $270,000 and a cost basis of $259,000, instead of a selling price of $261,000 and a cost basis of $250,000. It all comes out the same in the end.

(**If you carry investment property for more than 1 year, you may have the option of capitalizing certain carrying costs into the cost basis. But this is complicated, and may no longer be allowed after the 2017 tax reform--the IRS hasn't definitively ruled. But capitalizing costs does not apply in your case if you plan to sell quickly.)