Author Topic: Disposing of rental property - appraisal and taxes  (Read 302 times)

Fig

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Disposing of rental property - appraisal and taxes
« on: September 04, 2017, 01:25:12 AM »
Both real estate and tax questions, so I’m not sure where to post this but I hope you guys can help.

We are due to gift a rental property to relatives. The house was inherited by my husband in 2015 – both it and the relatives are in the USA but we live in the UK so we’re not familiar with dealing with property there.

1)  The appraisal conducted during probate was arranged by the family attorney but the executor isn't convinced it was a 'real' appraisal. I can't find the guy listed on websites of appraisers for the state; he appears to be a very elderly man with no web presence. How can we can verify the inherited value?

2) I understand that house can be gifted from my husband's $14k annual gift allowance and the remainder from his lifetime gift allowance. Also that we'll need a new report from a qualified appraiser to report the gift to the IRS. Is this all correct and is there anything else we need to consider?

3) The house was inherited as a rental property and we now rent it to the relatives who’ll receive it as a gift. I understand that we'll need to pay capital gains on any increase in value (based on the aforementioned inherited/current appraisals and factoring in depreciation) but is there anything else we need to consider when disposing of/gifting a rental rather than a residence?

Any other advice gratefully received (but yes, gifting the property rather than selling is the right decision for us).

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former player

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Re: Disposing of rental property - appraisal and taxes
« Reply #1 on: September 04, 2017, 01:43:41 AM »
I'd tell the executor to contact the attorney regarding any issues they have over the appraisal for estate purposes.  Not your circus, not your monkeys - the executor deals with the estate only, and once the property is yours they have no interest in it or in any appraisal on it for your future tax purposes.  Similarly, your interest in the appraisal has nothing to do with the estate or the executor but is for your personal tax purposes only, and for tax purposes I think you should be entitled to rely on the appraisal provided to you - although you may want to check with the tax authorities that this is OK if there are valid doubts about it.

Can the relatives pay anything towards this transaction?  I understand gifting a property that has been inherited, but why should it cost you money to do so?  If possible, get the relatives to pay both the capital gains and the transaction costs.
Be frugal and industrious, and you will be free (Ben Franklin)

cliff

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Re: Disposing of rental property - appraisal and taxes
« Reply #2 on: September 04, 2017, 03:45:56 AM »
Annual tax return needs to be filed with both federal IRS and the state.  If you don't have a Certified Public Accountant (CPA) be sure to get one to handle filing taxes on behalf of the estate.  You will need to file a designated "final" tax return on behalf of the estate. I am not familiar with the mechanics of the gift tax to give you any advice on if you can gift the property in one year or if there is some method of doing it over a number of years which might  cause you to file tax returns for several years.  I am not a CPA nor an attorney so can't give you qualified advice except to say that I recommend you have one of each licensed in the state(s) you are dealing with.

Best wishes, Cliff

Michael in ABQ

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Re: Disposing of rental property - appraisal and taxes
« Reply #3 on: September 04, 2017, 03:34:20 PM »
As you've probably already determined appraisers are licensed/certified by each state. Some states allow people to appraise property without being licensed as long as it's not for a federally related transaction, i.e. a mortgage or submitting to the IRS. However, I would recommend finding a certified residential appraiser (or telling the executor to do so). It will probably cost around $350-450 depending on the market and should take 7-10 days. Some areas with booming real estate markets like Seattle, WA and Portland, OR you could be waiting a few weeks and paying $500+ due to supply and demand.

Appraising real estate for estate purposes is pretty common but you want to hire someone who has experience in that area as there are some differences with typical appraisals for lenders related to a mortgage. An appraiser can also perform a retrospective appraisal based on the date of death (the date you inherit the property) which should establish your basis in the property. If they were perform a current appraisal for the gift and a retrospective for the date of death it would probably be a significant cost savings versus higher two separate appraisers.

I would definitely consult with a CPA. They will generally be able to recommend appraisers who do good work and can help answer all of the tax questions.