California / Cost Basis

[JKroll]

In 2002 my brother and I inherited my parents' house in California through a trust. We each inherited 50/50%. At that time the house was appraised at $500K and we understood that to be our cost basis stepped-up. It was my understanding that since we each owned 1/2 share, our cost basis was then $250K each. Now my brother has died and I have inherited his 1/2 share. This is a probate case and the probate referee appraised my brother's share at $340K FMV. Perhaps I assumed incorrectly that the $340K is added to my already established cost ($250K)basis to arrive at a final cost basis of $590K. But my lawyer has me in circles because he says that the FMV is not the cost basis; that a cost basis ("whatever it is") is arrived at through some sort of court proceeding. He also stated to me that I don't get a stepped-up basis because the property passed from sibling to sibling. Now he says it is possible to get a stepped-up basis. It seems to me there should be some method other than doing a court proceeding to determine my new cost basis? Where did our original cost basis of $500K disappear to?
Or, do I now use the original $500K as the cost basis and add to that my brothers FMV appraisal to equal $840K? Any insight will be appreciated!

 

[The Finance Writer]

I hope your lawyer's point is that the tax basis for inherited property is typically the value identified in the probate court records. Your initial analysis of your basis is correct. That is, your basis in the half you inherited from your parents is unchanged; the half you inherited from your brother is the stepped up value of that half on his date of death. So, $250K plus $340K gives you a tax basis of $590K.

 

[JKroll]

Tax Basis / Cost basis?

Thanks for your response. But you use term in last sentence "tax basis". Are you saying that this tax basis is the same as 'cost basis' then?

 

[kirby]

Hi JKroll
The info from Finance Writer is on the money. When you sell this property the "basis' will be the tax basis of $590K. Cost basis would be what your parents paid for the house originally plus any major improvements, and it does not matter for taxes. By the way, unless your lawyer is a full fledged tax attorney be wary of his "advice" when it comes to taxes. Get tax advice from your tax professional.

 

[JKroll]

Thank You

Sincere thanks to Finance Writer and Kirby for their input!