[WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

Fri Jun 24 08:33:48 PDT 2022

Thank you all for the input.

I will tell you that we are not talking taxable at all. My concern is that
there are 7 beneficiaries, this is the only asset. There is a private party
willing to purchase - and no, I do not know if there is any connection as
to why the Executor would want to save them money - and the Executor is
staying adamant that since they don't need to use a Real Estate agent to
list the mobile home, that the Executor can reduce the "market valuation"
by the amount of what would have been paid in commission.

This is a very modest estate - less than $250k total - which is why I worry
that some of the beneficiaries may take issue with the fact that the amount
available for distribution will be reduced by about $20,000.  The essence
of her argument is that the end amount would be about the same IF a Real
Estate agent is used, and since they are not using a professional Real
Estate agent that its appropriate to lower the price.

*Brent Williams-Ruth* (pronouns: he/him)
*Attorney-At-Law*

*Law Offices of Brent Williams-Ruth, **a division of BWR Consulting, PLLC*

*Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003*

***EFFECTIVE IMMEDIATELY** All mail sent through the USPS should be sent to
the following address: **PO BOX 3319; Federal Way, WA 98063 *

Office/Scheduling Phone: (253) 285-7751

Direct: (253) 285-7453

e-mail <Brent at Williams-RuthLaw.com> / website
<http://www.williams-ruthlaw.com/> / facebook
<http://www.facebook.com/bwrlaw> /

On Thu, Jun 23, 2022 at 9:36 PM Joshua McKarcher <josh at mckarcherlaw.com>
wrote:

> This is a good reason to ensure the CPA preparing estate/trust returns
> understands these points so that such losses (or in other cases, taxable
> income) can properly be distributed timely (in the case of income) and
> reported out to beneficiaries for (usually) maximum tax efficiency. Also a
> good reason to review such returns before finalized.
>
>
>
> (A fiduciary client recently used H&R Block for what they assumed was a
> simple irrevocable trust income tax return before the CPA or I knew. Gah.
> Thankfully it made a difference of hundreds of dollars and not thousands of
> dollars.)
>
>
>
> Now, for some reason I have this feeling that Brent’s client isn’t angling
> about any of this – but I’m happy to be wrong. 😉
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com <
> wsbapt-bounces at lists.wsbarppt.com> *On Behalf Of *Philip N. Jones
> *Sent:* Thursday, June 23, 2022 9:03 PM
> *To:* WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> *Subject:* Re: [WSBAPT] Valuation of Property: List Price vs. Net
> Proceeds?
>
>
>
> If the question is how the sale is treated for fiduciary income tax
> purposes, here is the answer:
>
>
>
> Let’s assume that the house is sold on the open market a few months after
> the date of death, through the services of a professional real estate
> broker.  That sale usually determines the fair market value of the
> residence, and it is not unreasonable to use that sale price as the fair
> market value on the estate tax return and as the post-mortem income tax
> basis of the residence.  But how are the broker’s commission, the title
> insurance premium, and related closing costs handled for tax purposes?  The
> expenses of sale are usually not deductible on an estate tax return under
> §2053(a)(2) or against ordinary income for fiduciary income tax purposes.
> Instead, those expenses are offsets against the selling price to reduce
> gain or to increase loss.  *Scull v. Commissioner*, T.C. Memo 1994-211,
> n. 14.  But because the sale price is also the basis, offsetting those
> closing costs will produce a capital loss.  That loss can be offset against
> capital gains, and if the losses exceed the gains (as noted above), the
> excess can be deducted up to $3,000 per year against ordinary income.  If
> the sale takes place in the final year of the estate (and modest estates
> often have only one tax year, which is both the first tax year and also the
> final tax year), then the loss flows out to the beneficiaries, who can use
> the loss to offset their own capital gains, and any net loss of each
> beneficiary can be deducted against ordinary income by each beneficiary up
> to $3,000 per year under §1211(b).  §1.642(h)-1(c).
>
> If a discount is granted to reflect the absence of a broker, my guess is
> that the FMV is the higher of the two prices, but I can’t offer any
> authority on point.
>
> Phil Jones
>
>
>
>
>
> Philip N. Jones
>
> Duffy Kekel LLP
>
> 900 S.W. Fifth Ave. Suite 2500
>
> Portland, OR 97204
>
> pjones at duffykekel.com
>
> (503) 226-1371 – office
>
> (503) 853-1482 – cell
>
> (503) 226-3574 - fax
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com <
> wsbapt-bounces at lists.wsbarppt.com> *On Behalf Of *Joshua McKarcher
> *Sent:* Thursday, June 23, 2022 5:49 PM
> *To:* WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> *Subject:* Re: [WSBAPT] Valuation of Property: List Price vs. Net
> Proceeds?
>
>
>
> Excellent, Bruce, and “Oops, Josh.” I made an assumption I should not
> have: I took Brent’s price if “listed for sale on the open market,
> regardless of commissions, fees, taxes - that would be subtracted” to mean
> the *resulting gross sale price* arising from negotiations on that
> listing between arm’s length seller/buyer neither with any desperation to
> buy/sell, etc.
>
>
>
> I did *not* mean any tax agency would accept a bare “listing price”
> without more – my apologies on that one.
>
>
>
> Bruce, I certainly understand it as you have described it, yes. Thanks for
> the excellent clarification. Best, Josh
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com <
> wsbapt-bounces at lists.wsbarppt.com> *On Behalf Of *Bruce Moen
> *Sent:* Thursday, June 23, 2022 6:32 PM
> *To:* WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> *Subject:* Re: [WSBAPT] Valuation of Property: List Price vs. Net
> Proceeds?
>
>
>
> I think neither.  Allard v Pacific Bank says to test the market by listing
> or an independent appraisal.
>
>
>
> I understand the fmv to be the gross sales price after listing the sale to
> the public (or an appraisal -not a realtors opinion letter).  Not the net
> proceeds and not the listing price.
>
>
>
> Anyone have a different understanding or authority?
>
>
>
>   Bruce Moen
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com <
> wsbapt-bounces at lists.wsbarppt.com> *On Behalf Of *Joshua McKarcher
> *Sent:* Thursday, June 23, 2022 3:47 PM
> *To:* WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
> *Subject:* Re: [WSBAPT] Valuation of Property: List Price vs. Net
> Proceeds?
>
>
>
> I’m with you, and I think tax agencies would be if a taxable estate. There
> is something missing here: why does the distinction matter? And why would
> she want to ‘list’ it this way? Any chance the buyer is a related party to
> her or something?
>
>
>
> *From:* wsbapt-bounces at lists.wsbarppt.com <
> wsbapt-bounces at lists.wsbarppt.com> *On Behalf Of *Brent Williams-Ruth
> *Sent:* Thursday, June 23, 2022 4:17 PM
> *To:* WSBA Probate & Trust Listserv <WSBAPT at lists.wsbarppt.com>
> *Subject:* [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?
>
>
>
> Mighty Brain Trust -
>
>
>
> Decedent passed owning a mobile home.  There is a person who wants to
> purchase said mobile home. Executor obtained a market valuation but then
> said that the value would be less because it's a private sale and won't
> need to use a real estate agent (thus no commissions).
>
>
>
> She wants to officially list the market value as being this lower figure.
>
>
>
> Has anyone had ever dealt with this? To me, market value is what it would
> be listed at if listed for sale on the open market, regardless of
> commissions, fees, taxes - that would be subtracted. To me, it wasn't about
> the net amount that would come after a sale but the list price.
>
>
>
> The statute does not seem to help and I am not finding case law that is on
> point with my thoughts.
>
>
>
> Appreciate insights.
>
>
>
> Thank you!
>
> *Brent Williams-Ruth* (pronouns: he/him)
> *Attorney-At-Law*
>
> *Law Offices of Brent Williams-Ruth, **a division of BWR Consulting, PLLC*
>
> *Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003*
>
> ***EFFECTIVE IMMEDIATELY**** All mail sent through the USPS should be
> sent to the following address: PO BOX 3319; Federal Way, WA 98063 *
>
> Office/Scheduling Phone: (253) 285-7751
>
> Direct: (253) 285-7453
>
> e-mail <Brent at Williams-RuthLaw.com> / website
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