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| Does anyone take discounts on a first to die's community property interest in real estate? If so, do you always do it, or only in certain situations?
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Member
 
Group: Forum Members
Last Login: 5/2/2011 5:21:23 PM
Posts: 13,
Visits: 92
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| I have no official site to send you to, but my practice has been to be consistent with the discounts. If you are going to need discounts on the second death, take them on the first. To defend the discount on audit you would need to show that the theory applied to both. However, always use professional judgement with each client situation. For example, if you know the surviving spouse is in poor health, or that the home may be sold soon, and look at the home sale exclusion, etc, to see if the discount makes sense for future tax planning. I usually don't take a very large discount on the personal residence, say 15%, but have taken 20% to 23% and it has not been challenged.
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How do you determine the discount rate to use? Do you use a valuation expert (or are you one)? Particularly for a personal residence. The surviving spouse in this case died within 6 months of the 1st spouse and they are just above the limit for 2 estates.
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Review some of the court cases if you would like to get a feel for the size of a discount to take, or take one of the Education Foundation classes, they are pretty good.
For your specific case, calculate what you would need to get under the limit....? If you want to have a discount appraisal done, there would be a fee. How was the house appraised? Will that individual do the discount appraisal for you?
For a personal residence run the numbers, use your own judgement, if it is reasonable and you feel you can defend it on audit, use it. If you would like to discuss, please call 209-521-1376
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Member
Group: Forum Members
Last Login: 8/30/2010 8:41:47 AM
Posts: 33,
Visits: 104
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| I would agree with the last posting about the discounts, however I would take it a little further. I think you need to disclose in the 706 how you arrived at the discount and document your position by applying the points in the cases or other support that are applicable to the property in your situation. I will include this documentation in the 706 next to the appraisal.
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| I've been to estate conferences where IRS agents have spoken. They said don't expect to be allowed valuation discounts on the second to die, if they weren't taken in the first spouse's estate. Also another unwritten rule is I've never had a problem with taking a 15% discount. One IRS agent got up one time and said you need back up substantiation for taking a valuation discount even if it was for 15%. Reading between the lines, I think he was in fact stating that you don't have to have backup for a 15% discount, but he can't state that. I've never been challenged on using that percentage and I've never had back up for it. My highest discount I've ever taken was 60%. For that amount, I of course had appraisals from a top expert.
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