[WSBARP] real estate - tax issues

Jane Bitz jbitz at whc-attorneys.com
Fri Jan 15 11:27:01 PST 2021 

If the step-up in basis is eliminated, it hits hardest for those with less net worth (again). Many individuals’ only investment is the home that they bought and paid for. The stepped up basis should be preserved for the principal residence of the decedent.

Jane G. Bitz
Of Counsel
Wolff, Hislop & Crockett, PLLC
12209 E. Mission Ave, Suite 5
Spokane Valley, WA 99206-4824
(509) 927-9700 x126
FAX: (509) 777-1800


From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Kaitlyn Jackson
Sent: Friday, January 15, 2021 11:09 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] real estate - tax issues

Can’t they just cap the step up?
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On Jan 15, 2021, at 10:39 AM, John J. Sullivan <sullaw at comcast.net<mailto:sullaw at comcast.net>> wrote:
And ... hitting everyone with cap gains on inherited property, after reducing the benefit of inherited IRAs isn’t exactly “progressive.” This is a middle class tax increase.
Sent from my iPhone


On Jan 15, 2021, at 10:32 AM, John J. Sullivan <sullaw at comcast.net<mailto:sullaw at comcast.net>> wrote:
They looked at ending the step up (or studied it) in the Carter years. The administrative hassle of multigenerational basis tracking is a real burden. That’s what’s always stopped it before. You’re right that it’s tied at the hip to the estate tax to mitigate the overall burden.

I’ve always thought the Canadian system made more sense. I don’t know if it’s still the law, but instead of an estate or inheritance tax, they used to impose a 15% capital gains tax on capital assets at death. It avoids the carryover basis and is a much less confiscatory tax than an excise on the transfer that can amount to as much as 40% to 50% of the DOD value.

John J. Sullivan
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On Jan 15, 2021, at 10:21 AM, Kary Krismer <Krismer at comcast.net<mailto:Krismer at comcast.net>> wrote:


The step up in basis makes little sense with the increased unified credit.  Before there was much more of a chance of double taxation.  Maybe even less sense in the context of a spouse receiving property.

Kary L. Krismer

206 723-2148
On 1/15/2021 9:46 AM, Rani K. Sampson wrote:
According to a local CPA who just gave a tax update talk, his firm expects the step-up in basis to be on the chopping block.  1031s are also a target.

That’s part of the fun of working in estate-planning.  The laws are always changing.

Rani K. Sampson
Overcast Law Offices | Attorney
23 S Wenatchee Ave #320, Wenatchee WA 98801 | (509) 663-5588 x 6

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com><mailto:wsbarp-bounces at lists.wsbarppt.com> On Behalf Of John J. Sullivan, Esq.
Sent: Friday, January 15, 2021 9:16 AM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com><mailto:wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Taking non resident alien spouse off title of real estate - tax issues

Yes. If it is converted from CP to SP as TIC, only the decedent’s half would receive the first step up. But the SS still gets the $250K residence exemption for SS’s half, and the entire property would get the step up at the second death. It may not be a major concern.

John J. Sullivan

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com><mailto:wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Kary Krismer
Sent: Friday, January 15, 2021 8:40 AM
To: wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Taking non resident alien spouse off title of real estate - tax issues


I've been thinking about my step up in basis concern, and I no longer think it's a concern.  If the other spouse gets the property the basis would be stepped up because they would inherit the entire property.  If anyone else gets the property, the basis would be stepped up for the same reason.  I think the concern would be converting the property from community property to tenants in common.  There my concern would be only half the property would get a step up in basis.

But of course, checking with a tax attorney would be prudent.  There may be other estate or income tax concerns.

Kary L. Krismer

206 723-2148
On 1/12/2021 9:42 PM, Kary Krismer wrote:

What I meant by raising FIRPTA was whether the couple was contemplating a future sale and thinking by doing a QCD beforehand they could avoid FIRPTA.  I'm not sure that future sale would give rise to FIRPTA withholding, but again I'm not sure it wouldn't either.  But I wasn't worried about FIRPTA on the gift.

As to the step up in basis my concern was that the step up would only apply to community property, not separate property.  Also a question I don't know the answer to.  In the back of my mind I seem to recall it applies to either type of property, but that's something I'd want to make sure of.

Kary L. Krismer

206 723-2148
On 1/12/2021 7:29 PM, John J. Sullivan wrote:
Good points.

1. No FIRPTA withholding on gifts. No gain realized.

https://www.irs.gov/individuals/international-taxpayers/exceptions-from-firpta-withholding<https://urldefense.proofpoint.com/v2/url?u=https-3A__www.irs.gov_individuals_international-2Dtaxpayers_exceptions-2Dfrom-2Dfirpta-2Dwithholding&d=DwMFaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=QdyRUSI4IjN8jHONJV63CB7QV6AxGix1TpuYc8c6Rww&m=gUVWNB5YLqCUbL49DYKdQ6OPZy9-_uNjryJHYH2yiII&s=hnm_V69diIKp7NaAS1nFBpgbzzzL8PgrYKlInj9LUgU&e=>

2. Yes. If NRA spouse died first there would be a step up in basis even though estate not subject to estate tax.  Perhaps she transfers her interest to a revocable trust for his benefit? Or somehow achieve whatever the objective is while not removing it from her gross estate?

https://hodgen.com/why-nonresident-decedents-get-step-up-basis-at-death/<https://urldefense.proofpoint.com/v2/url?u=https-3A__hodgen.com_why-2Dnonresident-2Ddecedents-2Dget-2Dstep-2Dup-2Dbasis-2Dat-2Ddeath_&d=DwMFaQ&c=euGZstcaTDllvimEN8b7jXrwqOf-v5A_CdpgnVfiiMM&r=QdyRUSI4IjN8jHONJV63CB7QV6AxGix1TpuYc8c6Rww&m=gUVWNB5YLqCUbL49DYKdQ6OPZy9-_uNjryJHYH2yiII&s=u_XfevPvBFemymte0PSY5IHLzRxNXSiBx5Jn4bhuD1o&e=>

Don’t forget to check any applicable treaty.

John J. Sullivan
Sent from my iPhone

On Jan 12, 2021, at 7:15 PM, Kary Krismer <Krismer at comcast.net><mailto:Krismer at comcast.net> wrote:


I would take a step back, and if this is just about FIRPTA, find out if FIRPTA would even apply with a US Citizen still on title.  I sort of doubt it would since they would have a taxpayer to reach, but I don't know that.

And then I would think about the step up in basis on death of community property when a spouse passes away, and find out whether you'd be giving that away.  Without this transfer and a step up in basis there'd likely be little or no gain for several years, and even if FIRPTA applied any money taken would be paid back upon filing a return.  Note that step up in basis would apply whichever spouse dies first.

It may be the client is wishing to avoid a non-existent problem and creating a future liability.

Kary L. Krismer

206 723-2148
On 1/12/2021 6:22 PM, John J. Sullivan wrote:
If NRA wife gifts now to citizen husband, the unlimited marital deduction applies.

I would specify it’s to create separate property and claim that REET exemption so if she dies her estate has no CP interest in US source property.

John J. Sullivan
Sent from my iPhone

On Jan 12, 2021, at 3:42 PM, Lisa Chiang <feesimple7 at gmail.com><mailto:feesimple7 at gmail.com> wrote:

Hi all,

A silly question, as it's been awhile since I've dealt with this scenario, so want to be sure:

Client is U.S. citizen.  Wife used to hold a green card, which she gave up after they moved overseas a decade ago.  IRS deems her to be a non resident alien (NRA) for tax purposes.  Kids are also U.S. citizens (all minors currently).

Real estate in WA state acquired as community property when they both lived and worked here.

Client would like to take his wife off title of WA house (she's agreeable).

Wondering about gift tax issues before we proceed.  (Will prepare QDOT for other liquid assets). Any thoughts or wisdom from the group is greatly appreciated.

Kind regards,
Lisa


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