Personal Finance Q & A

Tax Break Possible On Home Inheritance

Organizations can help you find investment clubs or research mutual funds

Q Here's the situation: Elderly parents deed their rural dwelling to two sons to ensure the home would go to them. Parents continued living in the home. Twelve years pass, during which time the parents pass on, first the mother, and in 1996, the father. The sons put the property up for sale and in 1997. It sold for $62,000. No estate or gift taxes are involved. Is the fair market value ($62,000) also the basis of the inherited property, and no gain realized on the sale?

- R.H.

A "Yes, and it gets even better than that," says Ed Slott, a CPA based in Rockville Centre, N.Y. "The parents had granted themselves a 'life estate.' So when the kids pick up the home, at the passing of the parents, the cost value is the estate value. But there are always expenses in selling, such as fix-up costs, advertising, and real estate listing fees." These become part of the cost basis. Say this all amounts to $68,000. The sons may have a capital loss.

If so, the loss (split between the two) can be used to offset other capital gains. If there are none, each son can use up to $3,000 in losses per year to offset other income. If the loss is greater, they can carry the remainder over to the next year's tax returns. Slott discusses this situation in his book "Your Tax Questions Answered," 1997 edition (Plymouth Press), pages 145-147.

Q I am writing in hope of your aiding me [in contacting] Morningstar Inc. and the National Association of Investors Corp. Thank you for any help you can give.

- D.M., Plymouth, Mass.

A Morningstar, the Chicago firm that rates mutual funds, is at 225 West Wacker Drive, Chicago, IL 60606. (Phone: 800-735-0700.) Its main competitor is Value Line (800-634-3583). The National Association of Investors Corp. represents individuals and investment clubs. It is at 711 W. Thirteen Mile Rd., Madison Heights, MI 48071 (248-583-NAIC). A counterpart (not competitor) is the American Association of Individual Investors at 312-280-0170.

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