My brother and I inherited a property over one year ago. My brother is buying my share of the property for around $200,000 less than a 2007 appraisal we have.
My question is, in order for me to be able to declare a capital loss to the IRS (I hear I can reduce my taxable income by $3,000 per year using this capital loss), do I need to get the property appraised on the day my brother bought my share of the property, or can I use the 2007 appraisal?
Thanks,
jberkman
Get a current appraisal.
So I take that to mean that the IRS requires an appraisal as the date of sale. Is this correct?
The IRS is going to require a current appraisal to justify such a loss. If the transaction is not for value, they will disallow the capital loss and charge you a gift tax for the difference between the sales price and true value.
You need to start with the appraised value of the property at the time you inherited. That appraisal sets your cost basis. A current appraisal establishes the FMV of the property at the time of the sale, and consequently your profit.
Since you are selling to your brother for less than FMV, the related party rules may require you to compute your taxable profit using the FMV of the property at the time of the sale, and any discount you give your brother will be a gift of equity.
Consult your tax advisor before taking any action.