Form 1099-S

Discussion in 'Tax' started by Chuck, Mar 25, 2011.

  1. Chuck

    Chuck Guest

    Does one get an inheritance by way of a 1099-S? And does the amount on
    a 1099-s *have* to end up on the tax return? If so, it seems to
    violate the concept that inheritance is not taxable.
    Yes, I know, wide-ranging topic, but...client feels proceeds are not
    taxable, and I want to make sure that my "end" is covered.
    Any thoughts?

    --
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    Chuck, Mar 25, 2011
    #1
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  2. Chuck

    Alan Guest

    On 3/25/11 9:40 AM, Chuck wrote:
    > Does one get an inheritance by way of a 1099-S? And does the amount on
    > a 1099-s *have* to end up on the tax return? If so, it seems to
    > violate the concept that inheritance is not taxable.
    > Yes, I know, wide-ranging topic, but...client feels proceeds are not
    > taxable, and I want to make sure that my "end" is covered.
    > Any thoughts?
    >

    A bequest is one of the exceptions to having to file a 1099-S. That
    doesn't mean that one will never be generated. It's just not required.

    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
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    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
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    << ------------------------------------------------------- >>
     
    Alan, Mar 25, 2011
    #2
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  3. "Chuck" <> wrote in message
    news:...
    > Does one get an inheritance by way of a 1099-S? And does the amount on
    > a 1099-s *have* to end up on the tax return? If so, it seems to
    > violate the concept that inheritance is not taxable.
    > Yes, I know, wide-ranging topic, but...client feels proceeds are not
    > taxable, and I want to make sure that my "end" is covered.
    > Any thoughts?


    Its not as straightforward as that.

    When someone dies the basis in their property that passes through to their
    heirs is ADJUSTED up or down to market value. We frequently talk about the
    "step-up" in basis on death, but its really a "basis adjustment" and it can
    go up or down. The first step is to determine what the adjusted basis is in
    the inherited property.

    Now when that property is sold most title companies will issue a 1099-S to
    report the sale of the real estate. There are several exceptions to the
    issuance of a 1099-S, but not being tax professionals most don't know that
    there is anything other than the principal residence exception, so the
    1099-S gets issued.

    When you do the tax return for someone who sold inherited property you get
    to do several really neat things -

    A - you get to use the decedent's date of acquisition as the date acquired.
    So if gramps bought that cabin 30 years before your client was born you can
    still report the date acquired as the date gramps bought the cabin.

    B - you report the cost basis of the property based on the adjusted basis
    used when gramps died, or the alternate valuation date whichever date and
    value was adopted by the executor or personal representative.

    C - you get to ADD to the adjusted cost basis any costs associated with
    selling the property - settlement costs and such.

    Now you start with the sale price and subtract the adjusted tax basis and
    that will give you the gain or loss. If the property increased in value
    AFTER gramps died but before it was sold there may be a reportable and
    taxable gain. But if the property has NOT increased in value then you will
    likely show a LOSS on the sale - remember the starting point for basis is
    the value when gramps died. Add to that your settlement costs and now the
    basis is greater than the sale price, hence a reportable loss on the sale.

    So while the proceeds themselves are not taxable, they may created a gain or
    a loss. You need to factor in all the pertinent information before you'll
    know for sure.

    Good luck,
    Gene E. Utterback, EA, RFC, ABA

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Gene E. Utterback, EA, RFC, ABA, Mar 25, 2011
    #3
  4. In article <imioal$2c0$>,
    Gene E. Utterback, EA, RFC, ABA <> wrote:
    >When you do the tax return for someone who sold inherited property you get
    >to do several really neat things -
    >
    >A - you get to use the decedent's date of acquisition as the date acquired.
    >So if gramps bought that cabin 30 years before your client was born you can
    >still report the date acquired as the date gramps bought the cabin.


    Gene, you must be thinking of gifts of appreciated property.

    For inherited property, you use INHerited as date acquired during
    the first year, then use either INH or date of death or AVD thereafter.


    The holding period for inherited property is always long term even
    if the decedent bought it two days before death, and the heirs sold
    it a month later.
    --

    ArtKamlet at a o l dot c o m Columbus OH K2PZH

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Arthur Kamlet, Mar 26, 2011
    #4
  5. Chuck

    D. Stussy Guest

    "Gene E. Utterback, EA, RFC, ABA" <> wrote in message
    news:imioal$2c0$...
    > ...
    > When you do the tax return for someone who sold inherited property you

    get
    > to do several really neat things -
    >
    > A - you get to use the decedent's date of acquisition as the date

    acquired.
    > So if gramps bought that cabin 30 years before your client was born you

    can
    > still report the date acquired as the date gramps bought the cabin.


    Incorrect. One lists the literal "INHERITED" instead of a date.

    > B - you report the cost basis of the property based on the adjusted basis
    > used when gramps died, or the alternate valuation date whichever date and
    > value was adopted by the executor or personal representative.


    Incorrect. One uses the FMV of the property (date of death or alternative
    date), not the adjusted basis. There is NO depreciation to account for.

    > C - you get to ADD to the adjusted cost basis any costs associated with
    > selling the property - settlement costs and such.


    Although in effect, true, costs of sale aren't a basis adjustment, so one
    doesn't actually add them to basis. However, one does sum the basis and
    the costs of sale on the tax return.

    > Now you start with the sale price and subtract the adjusted tax basis and
    > that will give you the gain or loss. If the property increased in value
    > AFTER gramps died but before it was sold there may be a reportable and
    > taxable gain. But if the property has NOT increased in value then you

    will
    > likely show a LOSS on the sale - remember the starting point for basis is
    > the value when gramps died. Add to that your settlement costs and now

    the
    > basis is greater than the sale price, hence a reportable loss on the

    sale.
    >
    > So while the proceeds themselves are not taxable, they may created a gain

    or
    > a loss. You need to factor in all the pertinent information before

    you'll
    > know for sure.


    Gene: You've been working too hard....

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    D. Stussy, Mar 26, 2011
    #5
  6. "D. Stussy" <> wrote in message
    news:imjs5f$r08$...
    > "Gene E. Utterback, EA, RFC, ABA" <> wrote in message
    > news:imioal$2c0$...
    >> ...
    >> When you do the tax return for someone who sold inherited property you

    > get
    >> to do several really neat things -
    >>
    >> A - you get to use the decedent's date of acquisition as the date

    > acquired.
    >> So if gramps bought that cabin 30 years before your client was born you

    > can
    >> still report the date acquired as the date gramps bought the cabin.

    >
    > Incorrect. One lists the literal "INHERITED" instead of a date.
    >
    >> B - you report the cost basis of the property based on the adjusted basis
    >> used when gramps died, or the alternate valuation date whichever date and
    >> value was adopted by the executor or personal representative.

    >
    > Incorrect. One uses the FMV of the property (date of death or alternative
    > date), not the adjusted basis. There is NO depreciation to account for.
    >
    >> C - you get to ADD to the adjusted cost basis any costs associated with
    >> selling the property - settlement costs and such.

    >
    > Although in effect, true, costs of sale aren't a basis adjustment, so one
    > doesn't actually add them to basis. However, one does sum the basis and
    > the costs of sale on the tax return.
    >
    >> Now you start with the sale price and subtract the adjusted tax basis and
    >> that will give you the gain or loss. If the property increased in value
    >> AFTER gramps died but before it was sold there may be a reportable and
    >> taxable gain. But if the property has NOT increased in value then you

    > will
    >> likely show a LOSS on the sale - remember the starting point for basis is
    >> the value when gramps died. Add to that your settlement costs and now

    > the
    >> basis is greater than the sale price, hence a reportable loss on the

    > sale.
    >>
    >> So while the proceeds themselves are not taxable, they may created a gain

    > or
    >> a loss. You need to factor in all the pertinent information before

    > you'll
    >> know for sure.

    >
    > Gene: You've been working too hard....


    Let me address that last comment first - I agree completely, I am working
    way too hard!

    As my esteemed colleagues Art Kamlet and D. Stussy have pointed out - you
    don't actually SHOW the date gramps bought the property as the date
    acquired, you use some abbreviation of the word INHERITED or whatever your
    software allows. My point, though perhaps poorly made, was that you get to
    use gramps holding period. Technically it is possible that if gramps bought
    the property shortly before he died and it was sold soon after inheritance
    you could have a short term gain. I should have been clearer on this point.

    For my esteemed colleague, Mr. Stussy - I appreciate your pointing out my
    misstatement. I said "adjusted basis when gramps died" when I MEANT
    "adjusted to FMV". I know what I meant but my post wasn't clear enough to
    convey it as I meant it.

    I also see that you noted "there is no depreciation to account for" and I'm
    not sure where this came from as my post made no mention of depreciation.
    Though perhaps the incompleteness of my post and my reference to adjusted
    basis could have misled you to believe that I factored in depreciation.
    Though it could be possible that after inheritance the property was used in
    a trade or business. If that did happen then one would factor in
    depreciation, but that would be based on the adjusted basis of the property
    after inheritance and any depreciation claimed afterward.

    Regarding my use of the term "adjusted basis". After nearly 30 years in
    this business we have become accustomed to saying "stepped up basis on
    death" when in fact the basis isn't always stepped up, sometimes -
    especially in many of the real estate markets we have now, that basis is
    stepped down. It was my intention to say what really happens - the basis
    gets adjusted at the date of death, or the alternative valuation date. I
    think its incorrect to say "stepped up", though that is the phrase we've all
    come to use as real property generally does go up in value over time.

    I will try to A)take a nap; and B) get a massage so that posts are more
    clear in the future <g>.

    Gene E. Utterback, EA, RFC, ABA

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Gene E. Utterback, EA, RFC, ABA, Mar 28, 2011
    #6
  7. In article <imqjmg$97n$>,
    Gene E. Utterback, EA, RFC, ABA <> wrote:
    >
    >Let me address that last comment first - I agree completely, I am working
    >way too hard!
    >
    >As my esteemed colleagues Art Kamlet and D. Stussy have pointed out - you
    >don't actually SHOW the date gramps bought the property as the date
    >acquired, you use some abbreviation of the word INHERITED or whatever your
    >software allows. My point, though perhaps poorly made, was that you get to
    >use gramps holding period. Technically it is possible that if gramps bought
    >the property shortly before he died and it was sold soon after inheritance
    >you could have a short term gain.


    Gene

    We've all probably been working too hard.


    In my previous message I pointed out that inherited property is always
    deemed to be held long term. In your scenario, if gramps buys property
    a week before he dies, and it is sold by the heirs a week after death
    it is deemed to be held long term.
    --

    ArtKamlet at a o l dot c o m Columbus OH K2PZH

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Arthur Kamlet, Mar 29, 2011
    #7
  8. "Arthur Kamlet" <> wrote in message
    news:imrnpn$rv4$...
    > In article <imqjmg$97n$>,


    Snipped

    > Gene
    >
    > We've all probably been working too hard.
    >
    >
    > In my previous message I pointed out that inherited property is always
    > deemed to be held long term. In your scenario, if gramps buys property
    > a week before he dies, and it is sold by the heirs a week after death
    > it is deemed to be held long term.
    > --
    >
    > ArtKamlet at a o l dot c o m Columbus OH K2PZH


    Let me be real clear - what Arts suggests my position took is NOT the
    position I meant to suggest. If gramps buys the property one week before he
    dies and the heirs sell it one week after he dies the holding period, IMO,
    is short term.

    Thanks to Art and the other fine professionals here who help keep me
    straight. I swear, I think I'm getting a little "slap happy" this season!

    Gene E. Utterback, EA, RFC, ABA

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Gene E. Utterback, EA, RFC, ABA, Mar 29, 2011
    #8
  9. In article <imt56l$itm$>,
    Gene E. Utterback, EA, RFC, ABA <> wrote:
    >
    >"Arthur Kamlet" <> wrote in message
    >news:imrnpn$rv4$...
    >> In article <imqjmg$97n$>,

    >
    >Snipped
    >
    >> Gene
    >>
    >> We've all probably been working too hard.
    >>
    >>
    >> In my previous message I pointed out that inherited property is always
    >> deemed to be held long term. In your scenario, if gramps buys property
    >> a week before he dies, and it is sold by the heirs a week after death
    >> it is deemed to be held long term.
    >> --
    >>
    >> ArtKamlet at a o l dot c o m Columbus OH K2PZH

    >
    >Let me be real clear - what Arts suggests my position took is NOT the
    >position I meant to suggest. If gramps buys the property one week before he
    >dies and the heirs sell it one week after he dies the holding period, IMO,
    >is short term.



    Here is a cite from the 1040 Sch D instructions:


    http://www.irs.gov/pub/irs-pdf/i1040.pdf Page D-6

    "If you disposed of property that you ac-
    quired by inheritance from someone who
    died before 2010, report the gain or (loss)
    on line 8 and enter INHERITED in col-
    umn (b) instead of the date you acquired the
    property. If you inherited the property from
    someone who died after 2009, see Pub.
    4895."


    While that paragraph is long winded and discusses the
    dual methods available for 2010 only for recognizing
    step up vs not filing estate tax forms, the noteworthy
    item above is that inherited property is reported on
    Schedule D Line 8. Line 8 is long term.


    >Thanks to Art and the other fine professionals here who help keep me
    >straight. I swear, I think I'm getting a little "slap happy" this season!

    --

    ArtKamlet at a o l dot c o m Columbus OH K2PZH

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2011) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Arthur Kamlet, Mar 30, 2011
    #9
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