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    kd341's Avatar
    kd341 Posts: 1, Reputation: 1
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    #1

    Sep 22, 2006, 09:18 AM
    Property damaged by Katrina, inherited and now sold
    How do I determine the taxes owed on property sold that was severely damaged by Hurricane Katrina? The house was flooded by Katrina's storm surge, and my father lost his life that day. The estate has closed and my sister and I inherited the property. Prior to the storm the home FMV was approximately $85,000. Shortly after the storm, damaged property in the neighborhood was selling for $25,000 - $49,000. Rebuilt homes are now selling in the neighborhood for approx. $127,000. Insurance appraised it as a total loss and paid off the mortgage. We sold the house/property for $57,500. The interior has been gutted, mold remediation performed and pest elimination completed prior to the sale. Our sales costs included commissions paid and property taxes. The closing attorney reported on the 1099 each of us receiving $28,750. What's our basis? Do we have gains or losses?
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert
    		  
    #2

    Sep 22, 2006, 04:46 PM
    Your basis is the property's FMV on the date your father's death or exactly six months thereafter, whichever the estate chose to use when evaluating the property. All the renovation costs should be added to that FMV, plus commissions and property taxes.
    vaya's Avatar
    vaya Posts: 55, Reputation: 1
    Junior Member
    		  
    #3

    Oct 1, 2006, 08:53 PM
    ATE, how about the casualty loss? Also, the fact that insurance paid off all the mortgage has to come into the picture.

    Vaya
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
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    #4

    Oct 2, 2006, 02:57 PM
    Vaya:

    Since the father died during Katrina, the FMV should reflect the DECREASED value that resulted from the storm damage. The proceeds from the sale certainly reflected the decreased value.

    The fact that the insurance paid off the mortgage is irrelevant when calculating the basis IF the payoff exactly matched the mortgage balance. If there was money left over after the mortgage was paid off, then, yes, those additional funds have to be factored into the basis.

    It is likely that KD341 will have to estimate the FMV based on comparative values, since I doubt the father's estate had the property formally appraised.
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