Capital Gains after Death?

Question

Hi BP Fam,

I have a couple questions regarding my grandparents house, If there is any info you have or could point me in the right direction that would be greatly appreciated. Both of my grandparents have both now passed and their three children (my mom, aunt, and uncle) are wanting to sell the house once my grandparents assets are out of probate. So here are my questions....

1. Would the siblings need to account for capital gains tax when the sell the home in September as non of them want the home? What should they account for assuming they sell the home for 260k?

2. I ultimately would like to purchase the home to them be used as a rental but I'm sure I wouldn't be able to get a mortgage (currently closing on my first real estate deal) by September. Contract for deed has crossed my mind. So here's my question, would the contract for deed be a "loop hole" to get out of the capital gains tax and be a better proposal strategy to getting me the home? If this is possible it would benefit both parties is my thinking. I am not trying to pull a quick one on my family or do anything out of their best interest.

3. Are there any other scenarios that would benefit both parties? I'm really open to hearing about any options whether it involves me or not. My family is the priority and if I could benefit from this and add to my portfolio, that would be the icing on the cake.

I appreciate any info you can throw at me! Thank you

Jaron Walling · Answer

@Sam Webber There should be no capital gains taxes. The children would be selling the property at a "stepped up basis" from the owners time of death.

A contract for deed is probably not the best plan of attack if you can find money (conventional, HM, private lender, etc.) to buy it. I'd start talking about an off market transaction and negotiate the numbers to actually work as a rental. We all know what happens when something gets listed.

These scenarios benefit both parties. You get a better deal, add another rental property, and they save time, money, and emotional pain dealing with it.

John Woodrich · Answer

As mentioned the family will get a step-up in basis to FMV at date of death. So if sold at the FMV amount there is no gain or loss to be reported. If it ends up stuck in probate for a year and you sell it for $50k higher than date of death there would be a gain based on the difference. Not common though.

No tax considerations at play for CD when there is no gain or loss. There is always that relative who already spent the cash they don't have so I don't see a CD working well for you here. Also they may think you are trying to get a "deal" which could lead to some family drama. Hold tight until it is ready to sell and see if you can buy it.

Colleen F. · Answer

@Sam Webber For capitol gains they pay capital gains at anything above the date of death value. When we sold and divided an estate we got a appraisal for the date of death. If you will buy this may be the best way to establish price. You may also want to account for condition that the appraiser doesn't pick up on. Usually a dated unit they account for but they may not account for things they can't readily see. We actually got the appraiser to provide value at Date of death and value for date of sale.

Jeff Schemmel · Answer

@John Woodrich maybe able to answer these questions.

Basit Siddiqi · Answer

There is normally a step up in basis when assets are passed down in inheritance.Make sure to get an appraisal.

Capital Gains after Death?

Capital Gains after Death?

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