Cost Basis on Inherited Home

J

Jmulh

New Member
Jurisdiction
Louisiana
My mother passed away in her home in Louisiana in 2015. According to the will my sister and I are to split the inheritance. However, my sister was granted the right to stay in our mothers house after she passed under a usufruct clause in the will. She has been living in the house for the past 7 years. During that time selling the house was prohibited according to the will. My sister is now moving out. We will be putting the house up for sale and split the proceeds. My question is when is my cost basis effective date regarding capital gains, 2015 or when my sister moves out? Since I was prohibited from taking joint possession in 2015 to sell the property then wouldn't my cost basis be established on the date my sister moves out? For all intents and purposes, from my perspective, it's no different than if my mother had still been living in the house preventing me from taking possession of my portion of the property. So am I correct to establish the cost basis at the time my sister moves out at which time I will take possession of my portion of the property?
 
Thanks for the links. I understand my sister had possession of the property under the usufruct clause in the will for the last 7 years since my mother died and I did not. Now my sister is moving and the property will be sold. However, normally, when inherited property is sold by the heirs the cost basis for capital gains tax is established at the time the parent dies. But since I don't have possession of the property until my sister leaves is it safe to assume the cost basis for my portion of the proceeds is not established at the time of my mother's death but rather when my sister ends the usufruct?
 
Jmulh said:
But since I don't have possession of the property until my sister leaves is it safe to assume the cost basis for my portion of the proceeds is not established at the time of my mother's death but rather when my sister ends the usufruct?
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It isn't "safe" to assume anything without the advice of a tax pro.
 
Jmulh said:
So am I correct to establish the cost basis at the time my sister moves out at which time I will take possession of my portion of the property?
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Unfortunately no. Your basis is the value of your share of the property on the date your mother died. The limitation on you being able to move into the home doesn't change that. Internal Revenue Code § 1014(a)(1) makes that clear, stating:

(a) In general Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be—
(1) the fair market value of the property at the date of the decedent's death,....​

(Bolding Added.) As you can see, it is the date of your mother's death that is the important date for determining your basis in your share of the property, not when you got the right to move into it.
 
Tax Counsel said:
Unfortunately no. Your basis is the value of your share of the property on the date your mother died. The limitation on you being able to move into the home doesn't change that. Internal Revenue Code § 1014(a)(1) makes that clear, stating:

(a) In general Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent's death by such person, be—
(1) the fair market value of the property at the date of the decedent's death,....​

(Bolding Added.) As you can see, it is the date of your mother's death that is the important date for determining your basis in your share of the property, not when you got the right to move into it.
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Thank you for the clarification.
 

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