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Inherited property
My father passed away September 2009. My sister and I inherited the property(50/50) and have turned it into a rental. My understanding is that we do NOT need to file estate taxes since it was worth less than $250,000. 1. Who gets to claim the mortgage interest, my fathers fed taxes or our personal taxes? And when? 2. Do we have to assume the mortgage loan? 3. When do we get to claim it as a rental? (property has been deeded to us but we have not assumed loan) 4. Do we need to file a schedule K-1? Thank you
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The determination of whether you need to file an estate tax form is based on the fair market value of your father's entire estate at time of death plus taxable gifts, not just his house. Estates valued at more than $3.5M must file. 1. You need to file a final income tax return for your father, to cover his income and deductions from Jan 1 2009 to date of death. Deductions such as mortgage interest should be included on his return, for interest paid by him up to date of death. After that, the mortgage is split between you and your sister, so you split the interest payment after date of death. Same thing with property tax deduction. 2. Yes, you need to refinance - for a couple of reasons. First is that the mortgage lender has the right to know who they've lent money to, and since this is going to be a rental they have a right to know that as well. Second is that you want your SS number on the loan so that you can claim the deduction as a valid business expense. 3. You can consider it a rental as soon as you start treating it as such. That is, when you are actively preppping it for rental and/or actually renting it out. 4. I see no need here for a K-1. Why do you ask? One last point - if you haven't done so already, be sure to change the title on the deed from your father's name to joint ownership between you and your sister. |
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Thank you. Very helpful. I asked about the K-1 because my sister's tax preparer wants to file estate taxes and wants $1000 to do so. The total estate is worth less than $250,000 including property. She says a K-1 needs to be filed and this is very complicated. It seems pretty basic to me. It's a rental property and everything split 50/50. She feels the attorney fees ($2500) for probate should be claimed in the estate taxes. I am just not convinced any tax benefit would outweigh her $1000 fee.
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