By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Probate Administration Attorney
In a pending estate administration case the Estate has a house that appraised at $367K. The house has been up for sale and has not sold yet. The price has been reduced multiple times and is now much less than the appraisal. The inheritance tax return, with a small amount due, has a filing deadline in 3 months. The estate tax return is due last week. The goal is to reduce the amount of taxes due by the estate.
Two questions were raised. Assume that prior to the deadline the Estate makes an estimated payment and over-pays the estate tax due. If the house sells prior to filing the actual return, the estate will be able to claim the value of the house as the sales price, as opposed to the appraisal. Second, how best to deduct the real estate commission, since the sale occurred within the administration of the estate (although not prior to the estate tax returns being due).
The estate tax value is the fair market value on the date of death (or on the alternate valuation date, if applicable). Fair market value is the price at which real estate will sell when exchanged between a hypothetical willing buyer and a hypothetical willing seller, both having knowledge of the relevant facts and neither being under any pressure to buy or sell.
Neither the appraised value nor the sale price is controlling. There are many cases where the IRS has sought a value different from the appraised value, and we’ve had several cases where either we or the Federal or State taxing authority has sought a value different from the sale price (where the sale was close in time to the valuation date). Each case turns on its own facts. Sometimes there’s a change in the market. Sometimes there’s a strategic buyer (such as the owner of an adjacent property). Sometimes a buyer overpays. Of course, given the modest value involved, it’s unlikely that an estate tax examiner will question either the appraised value or the sale price.
If the market has declined, you might elect alternate valuation.
The extent to which the maintenance and selling expenses are deductible on the estate tax return will vary depending on who if anyone examines the return.
However, given the modest value of the house, it’s possible that the estate will be subject to N.J. state but not Federal estate tax. In that case, the income tax rates will probably be higher than the estate tax rates. In that case, you may be better off claiming the highest value you can reasonably claim, and taking the maintenance and selling expenses on the income tax returns.
To discuss your NJ Estate Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.