A widow should consider getting a date of death appraisal with the probate referee to reset the basis for several important reasons:
1. Step-Up in Basis
When a spouse dies, the surviving spouse often receives a "step-up" in basis for the inherited property. This means the property's basis is adjusted to its fair market value on the date of the deceased spouse's death. This step-up can significantly reduce capital gains taxes if the property is later sold.
2. Accurate Valuation
A date of death appraisal ensures that the property is accurately valued at the time of the deceased spouse's death. This appraisal is essential for determining the correct step-up in basis, which can impact future tax liabilities.
3. Tax Reporting
The appraisal provides documentation needed for tax reporting. It supports the valuation used for estate tax returns (if applicable) and ensures that the correct basis is reported for income tax purposes when the property is sold.
4. Beneficial for Estate Planning
Having an accurate date of death appraisal can be beneficial for future estate planning. It provides a clear and documented value of the property, which can be helpful for dividing assets among heirs and beneficiaries.
5. Minimize Disputes
An official appraisal helps to minimize disputes among beneficiaries regarding the value of the property. This can be especially important if the property is to be sold or divided among multiple heirs.
6. Refinancing or Borrowing
If the widow plans to refinance or take out a loan using the property as collateral, an accurate and recent appraisal can be essential for these financial transactions.
7. Legal Compliance
In many jurisdictions, having an appraisal from a probate referee is required for probate proceedings. It ensures compliance with local laws and regulations regarding the valuation of estate assets.
8. Accurate Record Keeping
An appraisal helps maintain accurate financial records for the estate, which is important for ongoing estate administration and eventual distribution of assets.
By obtaining a date of death appraisal, a widow can ensure that the property's value is correctly assessed, which can have significant financial and legal benefits.
I, as an estate planning attorney who helps with after death trust administration and probates, recommend using the California Probate Referee to fill out a date of death value report that will satisfy the IRS when determining the step-up in basis. Having a "step-up in basis" and having the evidence that actually proves the stepped-up basis to the IRS are two different things.
When a surviving spouse sells his / her primary residence, the following year's income tax return will ask whether he / she sold any real estate. If the answer is yes, the next question on the return is "what was the basis of the sold property? The basis in the property is the amount the couple originally paid for the house. The IRS is looking to calculate a capital gain tax on the appreciated value of the property. On each of their deaths, the Federal "step-up" in basis rule applies. The step-up eliminates the otherwise taxable gain on the property and "steps it up" to the date of death value.
Having a report to show the IRS regarding the step-up in invaluable. If you cannot prove the basis to them, I have heard they will default the basis to zero and tax the entire value of the home. That would be a very large tax!
Be smart and hire an estate planning attorney to help you with these issues. CPAs are very helpful with tax matters as well. Contact me if you have an estate planning or probate need, I would be happy to help.
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