Tax Q&A;: Home Values

Q: My husband inherited his parents’ house after they died in 1997--his dad in June and his mom in December. It took until August 1998 to sell the house.

We understand that my husband’s tax basis is based on the value of the house when his mom died, not on what they paid for it. But housing prices rose so fast that we’re sure the house was worth more when he actually sold it than when his mom died.

Our accountant says that we have no capital gains tax due and that the value of the house is what my husband sold it for since it was sold within a year of his mom’s death. His sister’s accountant says we owe capital gains tax based on the difference between what the house was worth in December 1997 (at time of death) and what it sold for in August ’98.

Which accountant is right? And if his sister’s accountant is correct, how do we find out what the house was worth in December 1997?

A: Your sister-in-law’s accountant is technically correct. Although the value of property sold within one year of death is usually a good indication of its value at the date of death, it is not necessarily the last word--especially when real estate prices are rising or falling rapidly. To accurately determine the tax basis of inherited property, you should obtain an appraisal for the value of the home at the time of your mother-in-law’s death. Ask your real estate agent for the name of a qualified residential real estate appraiser. The appraiser will use sales of comparable properties around the time of your mother-in-law’s death to help determine the value.

Your accountant may be going on the assumption that the IRS is not likely to question the home’s value in an audit. The likelihood actually depends on many factors. Generally speaking, an auditor familiar with the rapid recovery in Los Angeles real estate prices in 1998 might be prompted to ask questions. Also, the more the house was worth, the more likely the IRS is to dig for any discrepancies.

--WARD M. BUKOFSKY, CPA, Braverman, Codron & Co.

For more information on taxes and to see other questions and answers in this series, go to The Times’ Web site at https://www.latimes.com/taxes. To find a CPA, visit the California Society of CPAs at https://www.calcpa.org.