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    dagmaster's Avatar
    dagmaster Posts: 7, Reputation: 1
    New Member

    Jun 8, 2007, 08:15 AM
    Basis and Expenses on Inherited Property Sale
    My wife and brother-in-law inherited their father's home upon his death 6 months ago.

    Brother-in-law wants to purchase my wife's share. Brother-in-law is also executor.

    How do we establish basis, FMV and report sale between siblings of inherited real estate?
    The plan at the moment is to get market appraisals from several realtors and average them to establish FMV. However, this won't be a "paid for" written appraisal. Brother-in-law wants to deduct commissions (7% in Maine) from FMV we would have paid if we went through a realtor. What should we be concerned about?

    Cleaning and trash disposal fees are involved. Can these be divided? Schedule D?

    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307

    Jun 8, 2007, 08:31 AM
    The basis is the fair market value at the time of death. You should get an appraisal, in writing, to establish the FMV basis for tax purposes. As executor your brother-in-law needs to do that.

    I don't understand the bit about your brother-in-law wanting to subtract 7% - is he saying that when he buys out your wife's half he wants to subtract 7% from what he pays her? I wouldn't agree to that - tell him that you're not using a realtor, so it's not logical for him to pay less than half.

    As long as both your wife and brother-in-law own the property 50/50, they should split expenses, which could include trash and clean-up but also real estate taxes, utilities, etc.
    dagmaster's Avatar
    dagmaster Posts: 7, Reputation: 1
    New Member

    Jun 8, 2007, 02:06 PM
    Thanks ebaines.

    Regarding the reduction of 7% sales commission. My wife's brother stated that, "she wasn't going to charge him a commision was she?".

    His plan is to get a valuation and deduct 7% from FMV and divide that amount equally. I get a little fuzzy here but it seems that my wife is shorted here as he is both a seller and a buyer at the same time. It's as if he's taking money out of one pocket and putting it in his other pocket as this "commission" money.

    We aren't using a realtor to transact this sale. Why would the appraisal or FMV need to be reduced by a "commission"? Is my logic wrong? It would seem that FMV and commissions are mutually exclusive.

    Also, it sounds like we need a written paid professional appraisal for Basis, not just a realtor market analysis. Correct?

    Thanks all.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307

    Jun 8, 2007, 02:15 PM
    Let me see if I have this right. Suppose the FMV on the house is $200K. He wants to subtract 7% of that, leaving $186K, then pay your sister half of that - $93K - to buy out her half. So that at the end he pays $93K to have full ownership of a $200K house? Is that the deal he proposes? If so, then I agree that it makes no sense - he's trying to get reimbursed for a fee that doesn't exist. Now, if he was actually paying someone 7% for services, then I could understand it. But he's not, so your wife doesn't owe him 7% on her half. In this example he should pay your wife $100K for her half.

    And yes, the written appriasal would be so you can prove basis to the IRS on the sale of her half of the property.
    dagmaster's Avatar
    dagmaster Posts: 7, Reputation: 1
    New Member

    Jun 8, 2007, 05:47 PM
    The property is worth $50K.

    My wife's brother proposes a sale price of appraisal less some negotiated amount because he says, "no one pays appraisal". Depending on market at the time this may or may not be true. Today's market probably true. (something like 50K - 5%= 47,500)

    Furthermore, brother wants to deduct another 3%, or 1/2 of the 7% commission that would have been paid had we sold to an outside party using a realtor and both he and his sister sold.

    47,500 - 1425 = 46,075

    The dilema seems to be how to equitably arrive at a sale price that treats both sister and brother fairly and distributes half the value to each. My wife is not a negotiator and her brother is a used car salesman. Nothing like family:)
    IntlTax's Avatar
    IntlTax Posts: 831, Reputation: 23
    Tax Expert

    Jun 8, 2007, 07:00 PM
    The comment about "no one pays appraisal" may be true if the appraisal was obtained for the purpose of taking out a mortgage. However, if the appraisal is to determine the true FMV, you should use the appraised amount and not reduce it at all.

    The idea about a fictional commission is bogus. There should be an appraisal and wife should get half appraised amount less half of any ACTUAL costs of the sale.
    ebaines's Avatar
    ebaines Posts: 12,131, Reputation: 1307

    Jun 9, 2007, 09:57 AM
    If they curently jointly own the property, and the plan is to sell it, why don't they just sell it together as co-owners? That way there's no up-front guessing needed - they split the proceeds less any expenses. No need for the brother-in-law to buy out your wife's half beforehand.
    dagmaster's Avatar
    dagmaster Posts: 7, Reputation: 1
    New Member

    Jun 9, 2007, 10:27 AM

    why don't they just sell it together as co-owners?
    My wife would prefer this but her brother wants to keep the property for "sentimental" (and.. er.. income reasons). He plans to rent it.

    We just want to establish fair market value and be out. We don't want to be in the rental business with a partner on this property.

    The will states the property was to be sold and proceeds split. My wife could petition that fiduciary duty was neglected by not selling to third party. It means a lot more to my wife's brother to control this asset 100%, she's OK with that and doesn't want to create bad blood with her brother.

    It just puts us on opposite sides of the table instead of pulling in the same direction if we were to co-sell the property to an independent party and we were both trying to maximize value.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,836, Reputation: 846
    Senior Tax Expert

    Jun 13, 2007, 10:35 AM
    Just pay for the appraisal and split the cost to determine basis.

    As for the ACTUAL selling price, get several realtors involved to determine what that is.

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