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Sold an Inherited house but Quicken never asked for an Appraisal [edited]

myquicken1

I inherited Mom's from house from a Trust and sold it 3 months later. I checked the prices of similar houses in the area and asked $420,000. A cash offer for that amount was made and I accepted it. A family member says I should have gotten an appraisal. I say no, in this case it was not necessary since it was a cash deal. And if it was bought with a loan, the buyer would have needed to get an appraisal, not me. So basically, as the trustee, I set the market value and that is exactly what I received. Additionally, Quicken never references an appraisal in any of the questions while running the program.

So, as it relates to the IRS, did I need an appraisal or not?

Thanks!

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Jim_Harman

We can't give tax or legal advice here, but here are some questions:

In your title, did you mean "Sold an inherited house"?

Did the Trust give the house to you and then you sold it, or did the Trust sell the house? This may affect who is liable for any capital gains from the sale, you or the Trust. You should consult an accountant to be sure.

Were you both the Trustee of the Trust that owned the house and a beneficiary?

Were there other beneficiaries of the Trust, and was their share affected by the amount you received from the sale?

If a beneficiary of the Trust is questioning your actions as Trustee, you should consult a trust and estate attorney, if only to avoid future hard feelings.

q_lurker

You are asking a legal question, not a Quicken question. Believing answers to legal questions from internet nobodies (including myself) is pretty foolish.

That said— it is typically the Trustee’s responsibility to value the assets of the trust and disperse them according to the terms of the trust. Were you the Successor Trustee? A professional appraisal would have been a good independent arms length tool for the trustee to use.

Beyond that, if you, an individual, received clear title to the property from the trust (inherited the house from the trust) it is no business of the ‘family member’ as to what you subsequently did with the property. Just my opinion.

Ask a lawyer, not the internet.

Jon

If you personally inherit a house and later sell it, you have to pay capital gains tax on any increase in value that occurred after you became the owner. If you didn't get an appraisal, how are you going to calculate those taxes or prove to the IRS that you paid the correct amount of capital gains tax? I hope you kept all the market research you did, but an appraisal at the time you became the owner would have been better IMO, especially considering the state of the real estate market in recent times.

OTOH, if you sold the house on behalf of the trust as its trustee, I have no knowledge of such things. I can only suggest that you consult a tax attorney to see if you made a mistake in not getting an appraisal.

Rocket J Squirrel

I agree with @Jon . An appraisal provides a documented tax basis for the inherited property so that any realized gain or loss can be properly reported to the IRS. Without an appraisal, you are just guessing.

You could perhaps have the house appraised after the fact if the new owner agrees.

Chris_QPW

myquicken1 said:

A family member says I should have gotten an appraisal. I say no, in this case it was not necessary since it was a cash deal.

It seems that you didn't understand why you would get an appraisal. Like the others have said, this appraisal would be for your tax purposes and for the actual selling the house. You (or the trust) are supposed to get an appraisal of house within (I believe it is 30 days, but I don't remember exactly) to set the fair market value of the house. This is the amount that you subtract from the sale price to get your capital gains.

And the appraisal of the house for a sell has nothing to do with whether this is a cash deal or not.
The buyer can insist or not insist on an appraisal so that they know what the value of the house is. Furthermore, if there is a loan company involved, they most likely want one, and that is only reason there might be a difference in this for a cash transaction. This appraisal would be completely different from the one done for determining the "step up fair market value" done to determine how much tax you should pay at the time of the sale.

Chris_QPW

BTW Quicken allows for the entries for recording tax events, but it isn't a tax program. So, it isn't going ask you questions to make sure you have entered everything correctly in Quicken to get the right tax information for your given tax situation.

Jim_Harman

Also just to be clear, I would not expect Quicken to prompt you to get an appraisal.

For more information on the tax implications of selling a home, see IRS pub. 523.
https://www.irs.gov/pub/irs-pdf/p523.pdf

Chris_QPW

You know when I think about it, I don't even think a tax program asks you to get an appraisal.
How would it even know that you just inherited the how, especially since you might not run the tax program until tax season? And with a trust it gets even more unlikely because the person handling the trust which is supposed to do the appraisal might be a completely different person than the one getting the house.

robsquick

Thanks for all the responses. However, let's not get too far in the woods; I'm not asking for tax advice but rather why didn't Quicken reference an appraised value. Let me simplify it:

I inherited the house from Mom's Irrevocable Living Trust. I am the only heir. So, at the time of her death the house became mine. My purchase price for the house became a step-up basis and therefore the current market value. Nowhere in the Quicken program was there a question related to an appraisal. For example, "Did you get an appraisal?", "What was the appraised value?", etc. Additionally, Quicken Help says this - "In general your cost basis is the fair market value of the items on the decedent's date of death. The executor or administrator of the decedent's estate may give you an alternative value. If they do, use that amount instead of the value on the date of death."
After reading that and since I am both the executor and new owner of the house, I don't believe I need to get an appraisal and maybe that is why Quicken never reference one.

Tom Young

You do put your inherited house on your balance sheet at its fair market value at date of death.

Mechanically, you'd typically click Tools > Add Account > Offline Account > Other Assets & Liabilities > Property to start the process. Quicken asks for the acquisition date and the purchase price, and that's it, though it allows you to enter a "current value" number if you wish to. The implicit assumption here is that you bought the house with your own money and there's no path within Quicken that asks how you actually came to own the house.

Chris_QPW

Let me state this a bit differently than @Tom Young did. As far as I see there isn't anything in Quicken that assumes that you bought the house. It doesn't make any assumptions at all about that.

If you look at the normal accounts in Quicken for a house, there is a loan account and an asset account. The loan account is just what sounds like for the loan only, the only really connection to the house is that the house is the collateral. You pay off the loan separate from anything that happens in the house asset account.

So, let's say the house loan is paid off. Now all we have is the house asset account. The standard prompts for creating this account is the to ask you what the current value of the house is, and it enters that as the opening balance. From then on Quicken's default for at least Premier and above is to track the current value using the estimate from Zillow as a balance adjustment.

So, with Quicken's default behavior there isn't anything entered for the tracking of taxes. Like I said, Quicken isn't a tax program it, isn't going to prompt you everywhere as to what your tax situation is.

Now there isn't anything stopping the user from manually entering transactions that would allow for better tracking of the taxes. For instance, instead of tracking the current value of the house, track the current equity of the house, which would mean subtracting off the purchase price and any improvements that can be deducted from the final sale. But this is totally up to the user to do.

So, how would one change from the "current value" to the "current equity". Basically, you would enter the costs into the house register that you are allowed to take off, and one of them would be the fair market value at the time of your Mom's death. Others would be any costs for the sale of the house. And will note something, in a way this is irrelevant. What is in Quicken doesn't matter, it is what you enter into your taxes that matters. You can use Quicken's house asset account to track enter the numbers and see what it should come out to be, but it will be you entering it into the tax program/tax forms that is "official".

The bottom line is that you can enter the transactions into Quicken but Quicken isn't going to prompt you do it anymore than it would have prompted a person that sold a house even if they didn't inherit it.

On the question of if an appraisal is needed or not, that is a pure tax question. And from the publication 523 that @Jim_Harman referenced here is the section on inheriting:

Home Inherited

Home acquired from a decedent who died before or after 2010. If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent's death (or the later alternate valuation date chosen by the personal representative of the estate). If an estate tax return was filed or required to be filed, the value of the property listed on the estate tax return is your basis. If a federal estate tax return didn’t have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes.

And looking at that, I don't see anywhere it states that an appraisal is required, or some date that you have to have done it by, it even states that it might be at a later date. Now in realty I'm sure there is a long tax code document to go with this statement that would describe this in much more detail, and as such might have information like what would be acceptable for determining the valuation.

This is exactly why you should never take tax advice from a forum like this.

q_lurker

myquicken1 said:

…

So, as it relates to the IRS, did I need an appraisal or not?

Thanks!

robsquick said:

Thanks for all the responses. However, let's not get too far in the woods; I'm not asking for tax advice but rather why didn't Quicken reference an appraised value.

You certainly did ask for legal tax advice. But beyond that, in my opinion expecting Quicken to guide you through that process would be expecting far too much. Way too many possible variations as to basis step up, type of property, trust and will provisions, etc.

Chris_QPW

BTW there is difference between what is required for filing your taxes and what might be suggested.
The burden of proof of the fair market value of the house might fall on you if the IRS decided to audit your taxes, and as such having best proof possible that you have the fair market value number right is what most people would like. Number from say Zillow are estimates and might not be considered proof.

Jim_Harman

In addition, there are several factors that affect whether you will owe capital gains taxes on the sale of the house, and Quicken (rightly IMO) does not get involved with that. This is properly the realm of tax software like TurboTax, which has a whole section on the sale of a home.

Tom Young

Chris_QPW said:

As far as I see there isn't anything in Quicken that assumes that you bought the house. It doesn't make any assumptions at all about that.

The phrase "Purchase price" seems pretty definitive to me. The word "purchase", in finance, typically is defined as "to obtain by paying money or its equivalent."

But really the only point I was trying to make here is that while there's lots and lots of ways to acquire a house that don't involve an out-of-pocket purchase - inheritance, gift, won in a contest, Starker exchange, foreclosure, and adverse possession to name a few - Quicken is designed for the vast majority of users' situation: buying a house for cash and/or loan.

So it's not going to ask about appraisals, donor's original basis, the amount reported on a 1099, or anything else. It's up to the user to figure out what to put in that "Purchase price" box.

Chris_QPW

@Tom Young I probably should have said "As far as I see there isn't anything in Quicken that assumes that you bought the house for use in tax planning."

robsquick

My bad! In my original post I made reference to Quicken. Should have been Turbo Tax! (I use both). Sorry for the confusion. Replace Quicken with Turbo tax in my post.

Turbo Tax asks the following - Description (of the sold asset), Date Sold, Date Acquired, Sales Proceeds, and Cost or other Basis. Nowhere does "Turbo Tax" reference an appraisal. And again, from TurboTax Help - "In general your cost basis is the fair market value of the items on the decedent's date of death. The executor or administrator of the decedent's estate may give you an alternative value. If they do, use that amount instead of the value on the date of death." This all leads me to believe that I do not need an appraisal to show to IRS if I were audited.

volvogirl

Man, I was going to ask if you meant Turbo Tax from the very beginning, lol. You need to go over to the Turbo Tax forum. Go over to the Turbo Tax forum here…

https://ttlc.intuit.com

Chris_QPW

robsquick said:

My bad! In my original post I made reference to Quicken. Should have been Turbo Tax! (I use both). Sorry for the confusion. Replace Quicken with Turbo tax in my post.

Oops.

That explains a lot!