How does one determine historical FMV of a property? ***New Question***

[Sugaree]

I need to know FMV of a SFH at a couple of points in time.  How do I go about that?  The tax records have been not so useful because it was inherited/gifted among a couple of generations of family members and the tax office only seems to have sale price, which in this case is wildly inaccurate for FMV. 




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New Question:  A realtor suggested listing this house as-is at $120k.  Suggested improvements of having the interior of the house repainted, new cabinets, counter tops, some new flooring, updating all lighting, door knobs, and landscaping would increase that to $150k.

I have a flipper who is interested in it.  I suck at negotiations.  Do I start by asking for $120k with the intention of netting $110k-115k after it's all said and done?

[YttriumNitrate]

How far back are you looking to go?

You could go with assessed value, but know that there's often some multiplier or adjustment needed to convert to fair market value, and these change over time.

Things like Zillow offer their estimates going back 10 years.

Ideally, you could find a similar house nearby that had a few arms-length transactions to use as a comparable.

[Sugaree]

I need one from March or April of last year.  That one's easy enough to reverse engineer based on tax records.  But I think I also will need one from February of 1996. 

[Morning Glory]

You could probably also find what similar homes sold for last April, just by looking at Zillow.  Not sure about 96 though.  County records office????

[Sugaree]

You could probably also find what similar homes sold for last April, just by looking at Zillow.  Not sure about 96 though.  County records office????

Possibly.  I've looked over the records available online and it's not extremely helpful.  If I manage to actually sell this thing I might have to make a trip down there.

[GilesMM]

A lot depends on the location of the property (country/state/city, etc).  For 1996 you can fabricate a figure any way you like as long as you can defend it.  If someone else doesn't like it they will need to defend their own number.

[secondcor521]

I need one from March or April of last year.  That one's easy enough to reverse engineer based on tax records.  But I think I also will need one from February of 1996.

Why do you think you will need one from that far back?  (Maybe you do, maybe you don't.)

I would try to confirm that you need one before going through the hassle of trying to come up with a value.

[Michael in ABQ]

Hire an appraiser. Retrospective values are fairly common - even going back decades. It will cost several hundred dollars but if you need to establish a defensible value that far back it's the only way unless you have an arm's length sale from that time. Assessor values are worthless in many jurisdictions, same with Zillow. Our assessors has our 5-bedroom home valued at $310k Zillow says $375k and a model match home (nicer finishes) just down the street was listed for sale two years ago for $350k.


Ask them what their data sources are. A good residential appraiser with experience providing retrospective valuations should be able to provide a satisfactory answer. They've probably been saving sales data for years so they can find comps from 1996 (that information will not be in any MLS). The kind of appraiser who takes on cookie-cutter assignments from banks for $200 each is going to be lost with this type of assignment. If you can find someone with the SRA designation from the Appraisal Institute that's going to put them in the top couple of percent (though plenty of good residential appraisers don't have that designation as well).

I was a former commercial appraiser, I never touched residential except apartment complexes, but I have enough knowledge of the industry from talking to peers, etc.

[PDXTabs]

A lot depends on the location of the property (country/state/city, etc).  For 1996 you can fabricate a figure any way you like as long as you can defend it.  If someone else doesn't like it they will need to defend their own number.

I guess it depends where you are asserting your number. I once paid for a historic appraisal from someone who was an experienced expert witness because I paid him to testify in a civil trial for me. So, that's one option.

[Sugaree]

I need one from March or April of last year.  That one's easy enough to reverse engineer based on tax records.  But I think I also will need one from February of 1996.

Why do you think you will need one from that far back?  (Maybe you do, maybe you don't.)

I would try to confirm that you need one before going through the hassle of trying to come up with a value.

Because the history of this house is messy.  It was bought by my husband's grandmother and his dad in 1994 for $50k.  She passed away and it was changed to my FIL and MIL in 1996.  In 2021, they gifted it to my husband and I.  My husband passed away in September of this year.  Because it was gifted and not inherited, we should have FIL/MIL's cost basis.  And it was also used as a rental property by my FIL, so depreciation recapture has be factored in.  I only have about $62.5K of 0% LTCG space to fill, so I'd like to get the cost basis up as far as possible.

[Sugaree]

Hire an appraiser. Retrospective values are fairly common - even going back decades. It will cost several hundred dollars but if you need to establish a defensible value that far back it's the only way unless you have an arm's length sale from that time. Assessor values are worthless in many jurisdictions, same with Zillow. Our assessors has our 5-bedroom home valued at $310k Zillow says $375k and a model match home (nicer finishes) just down the street was listed for sale two years ago for $350k.


Ask them what their data sources are. A good residential appraiser with experience providing retrospective valuations should be able to provide a satisfactory answer. They've probably been saving sales data for years so they can find comps from 1996 (that information will not be in any MLS). The kind of appraiser who takes on cookie-cutter assignments from banks for $200 each is going to be lost with this type of assignment. If you can find someone with the SRA designation from the Appraisal Institute that's going to put them in the top couple of percent (though plenty of good residential appraisers don't have that designation as well).

I was a former commercial appraiser, I never touched residential except apartment complexes, but I have enough knowledge of the industry from talking to peers, etc.

Thanks!  I found three companies in my county.  Hopefully one of them does residential. 

[secondcor521]

I need one from March or April of last year.  That one's easy enough to reverse engineer based on tax records.  But I think I also will need one from February of 1996.

Why do you think you will need one from that far back?  (Maybe you do, maybe you don't.)

I would try to confirm that you need one before going through the hassle of trying to come up with a value.

Because the history of this house is messy.  It was bought by my husband's grandmother and his dad in 1994 for $50k.  She passed away and it was changed to my FIL and MIL in 1996.  In 2021, they gifted it to my husband and I.  My husband passed away in September of this year.  Because it was gifted and not inherited, we should have FIL/MIL's cost basis.  And it was also used as a rental property by my FIL, so depreciation recapture has be factored in.  I only have about $62.5K of 0% LTCG space to fill, so I'd like to get the cost basis up as far as possible.

Do you live in a community property state?  If so, and if you and your husband jointly owned the property (as it sounds like), then you would get a full basis step up to the FMV as of his death in September.  That would save you a lot of basis hassle.

You're probably familiar with this, but you can increase cost basis and decrease proceeds by including permanent improvements and transaction costs on the purchase (probably minimal) and sale (possibly a lot).  See IRS Pub 523 for details.

Also, you may qualify for an exclusion of gain on the sale of $500K even though your husband has passed away.  See details about "Widowed taxpayers" on page 4 of Pub 523.  I don't know offhand whether or not this exception covers the depreciation recapture, though.

[MoseyingAlong]

.... My husband passed away in September of this year.  ....

My condolences.

Any chance you live in a community property state and it was jointly held?
If yes, then your basis is the FMV on the date of your husband's death.

[Sugaree]

This isn't a community property state, but we did hold it jointly.  I *should* get a half step though, so that will help.  We didn't live in this property, so I don't think the exclusion applies. 

[secondcor521]

I think you have it right.

Even though you didn't live there, and there was business use, I think you can still account for improvements and purchase/selling costs, which should help reduce your realized gain.  See:
 https://www.irs.gov/publications/p523#en_US_2021_publink100010751

[Sugaree]

I think you have it right.

Even though you didn't live there, and there was business use, I think you can still account for improvements and purchase/selling costs, which should help reduce your realized gain.  See:
 https://www.irs.gov/publications/p523#en_US_2021_publink100010751

So, based on that pub, tell me if this sounds right. My FIL/MIL's cost basis is $50k (ignoring any half step that he would have received in 1996) less the depreciation.  Assuming that they depreciated it all the way down to the value of the land (or could have since whether they actually did or not is irrelevant) plus the cost of the metal roof that they put on in ~2017, then the cost basis that my husband and I were stuck with is maybe $15k.  In October, the realtor gave me a listing price of $120k, so that's probably a good assumption for FMV the month before and I believe that I should get a half-step up to that.  Half of $120k plus half of $15k is $67.5k.     

[secondcor521]

I think you have it right.

Even though you didn't live there, and there was business use, I think you can still account for improvements and purchase/selling costs, which should help reduce your realized gain.  See:
 https://www.irs.gov/publications/p523#en_US_2021_publink100010751

So, based on that pub, tell me if this sounds right. My FIL/MIL's cost basis is $50k (ignoring any half step that he would have received in 1996) less the depreciation.  Assuming that they depreciated it all the way down to the value of the land (or could have since whether they actually did or not is irrelevant) plus the cost of the metal roof that they put on in ~2017, then the cost basis that my husband and I were stuck with is maybe $15k.  In October, the realtor gave me a listing price of $120k, so that's probably a good assumption for FMV the month before and I believe that I should get a half-step up to that.  Half of $120k plus half of $15k is $67.5k.     

On depreciation, you might want to read carefully the following thread on Bogleheads, in particular the posts by MarkNYC:  https://www.bogleheads.org/forum/viewtopic.php?t=371770.  Although that thread may or may not be applicable to your situation - it's not clear to me when the rental activity took place and how much depreciation your FIL took, and whether the property was entirely rented out or just a portion.  (Also, I'm not an expert in rental property, depreciation, and the finer points that you're facing.)

Other than that, yeah, it sounds like you have it about right.  Except again, you should be able to subtract a number of selling costs (such as realtor fees) from your proceeds, and add purchasing costs (again, probably minimal to none in your case) to that $67.5K cost basis.  Both will reduce your capital gain.

[Sugaree]

I think you have it right.

Even though you didn't live there, and there was business use, I think you can still account for improvements and purchase/selling costs, which should help reduce your realized gain.  See:
 https://www.irs.gov/publications/p523#en_US_2021_publink100010751

So, based on that pub, tell me if this sounds right. My FIL/MIL's cost basis is $50k (ignoring any half step that he would have received in 1996) less the depreciation.  Assuming that they depreciated it all the way down to the value of the land (or could have since whether they actually did or not is irrelevant) plus the cost of the metal roof that they put on in ~2017, then the cost basis that my husband and I were stuck with is maybe $15k.  In October, the realtor gave me a listing price of $120k, so that's probably a good assumption for FMV the month before and I believe that I should get a half-step up to that.  Half of $120k plus half of $15k is $67.5k.     

On depreciation, you might want to read carefully the following thread on Bogleheads, in particular the posts by MarkNYC:  https://www.bogleheads.org/forum/viewtopic.php?t=371770.  Although that thread may or may not be applicable to your situation - it's not clear to me when the rental activity took place and how much depreciation your FIL took, and whether the property was entirely rented out or just a portion.  (Also, I'm not an expert in rental property, depreciation, and the finer points that you're facing.)

Other than that, yeah, it sounds like you have it about right.  Except again, you should be able to subtract a number of selling costs (such as realtor fees) from your proceeds, and add purchasing costs (again, probably minimal to none in your case) to that $67.5K cost basis.  Both will reduce your capital gain.

This is good info.  Thank you.  Based on that, and the IRS pub rabbit hole I fell down last night (you know, just a little light bedtime reading), it seems that depreciation recapture isn't so much an issue, but adjusting the base is.  That's a good thing because of how the two are taxed differently (true recaptured depreciation is taxed as ordinary income).  Looking at the federal return, getting it down to $67.5k is good enough. That will put it all squarely in the 0% LTCG bucket.  State is going to be 5% on the entire gain, so the more I can find that is reasonably provable to adjust the basis upwards, the better.  As much as it pains me to do it, I'll probably let FIL's accountant do my return this year (or next if I don't sell it until after the first of the year).  I met with him Tuesday and while he's not entirely clear what happened either, he has access to records that go far enough back to make an informed guess.  And that way if I get audited at least I have someone who can deal with it.