Step up in basis when spouse dies - tax implications for jointly owned properties?

Thanks for the explanation. I have a similar situation but I'm confused about timing. If my dad died 5 years ago but my mom is only now thinking about selling their house, can she still claim the step-up in basis based on the value 5 years ago? Or does there need to be an appraisal done right when someone dies? We never did any formal appraisal when he passed.

The step-up in basis is based on the fair market value at the date of death, regardless of when the property is eventually sold. So yes, your mom can still claim the step-up based on what the value was 5 years ago when your dad passed. Since you didn't get a formal appraisal at the time, you'll need to establish what the property was worth at that specific date. This can be done retroactively through a qualified appraiser who specializes in retrospective valuations. They can research comparable sales from that time period to establish a reasonable fair market value. You might also use property tax assessments, real estate listings from that time period, or other documentation to support the valuation. The more official documentation you have, the better.

Does taxr.ai actually connect you with real tax professionals or is it just some AI tool that gives generic answers? I've been burned before by services that claimed to offer professional advice but were just automated systems.

I'm curious - did they help with filling out any specific IRS forms too? My mom is in a similar situation with my dad's passing and we're trying to figure out if we need to file anything special now or just keep good records until she sells.

They actually combine both - they use AI to analyze your specific documents and tax situation, but then have tax professionals who review the results and provide personalized guidance. It's not just generic information; they identified specifics about our property holdings that were unique to our situation. For your question about IRS forms, yes they did help us determine what needed to be filed. In our case, we didn't need to file an estate tax return just for basis step-up purposes (since the estate was below the threshold), but they did provide a detailed documentation package with all the information we'd need when eventually selling the properties. They walked us through exactly what records to keep and how to present them when we file taxes after selling.

How does this service actually work? I've literally spent DAYS trying to reach the IRS about a similar issue. Is this some kind of priority line or something? I'm confused how they can get through when nobody else can.

This sounds way too good to be true. I've tried calling the IRS dozens of times over the past few months. You're telling me this service somehow magically gets through when millions of people can't? I'm extremely doubtful they can do anything the regular person can't do themselves.

The service works by using an automated system that navigates the IRS phone tree and waits on hold for you. It continuously redials when needed and basically does the frustrating part for you. When it actually reaches a human representative, it calls you so you can join the call. It's not a priority line or anything like that. I was definitely skeptical too before trying it. I had spent over 12 hours across multiple days trying to reach someone at the IRS without success. What makes it work is that their system is persistent and can keep trying when we humans would give up. The video demo shows exactly how it works - it's not doing anything you couldn't theoretically do yourself if you had unlimited time and patience. They're just using technology to solve the hold time problem.

Thanks for bringing this up! In my mom's case, the properties were indeed 50/50 ownership. But I'm curious - how would you document a different ownership split for jointly held property? Would that have been specified in the original deed or some other document? And good point about the primary residence exclusion timing. My mom has definitely lived in the home for the past 5+ years continuously, so we should be fine on that requirement. Appreciate you highlighting this!

For different ownership splits in jointly held property, it would typically be specified in the deed or in a separate legal document like a property agreement. If it wasn't explicitly stated anywhere, the default assumption is usually 50/50 for married couples, but this can vary by state. If you ever needed to prove a different split, you would want documentation showing who contributed what to the purchase or maintenance of the property. This could include mortgage payment records, improvement receipts, bank statements showing contributions to the down payment, etc. The burden of proof would be on you to demonstrate a split other than 50/50.

This is an excellent question and highlights an important distinction! In community property states (like California, Arizona, Nevada, etc.), the surviving spouse often gets a full step-up in basis for community property, not just the deceased spouse's half. This means in community property states, if the homes were held as community property (not necessarily JTROS), the surviving spouse's basis in the entire property becomes the fair market value at the date of death. This is significantly more favorable than the 50% step-up in non-community property states. If your parents lived in California and the properties were considered community property, your mother might be entitled to a 100% step-up in basis, which would substantially reduce any capital gains taxes when selling. This is sometimes called the "double step-up" benefit of community property. This is governed by IRC Section 1014(b)(6) and can result in significant tax savings. I'd strongly recommend consulting with a tax professional familiar with California community property laws to confirm this applies to your specific situation.

This is really helpful additional information! I hadn't heard about the alternate valuation date option before. Just to clarify - if property values went UP after the death date, would you still want to use the original date of death for the step-up calculation? It sounds like you can choose whichever gives you the better outcome, but I want to make sure I understand this correctly. Also, regarding the capital improvements you mentioned - do things like a new roof, HVAC system, or kitchen renovation count as capital improvements that would increase the basis? We did some work on both properties over the years and I'm wondering if we should be tracking down those receipts.

Good questions! Regarding the alternate valuation date - you're correct that you'd generally want to use whichever date gives you the better outcome, but there's an important catch. You can only elect the alternate valuation date if it results in a DECREASE in the total gross estate value AND total estate tax liability. So if property values went up after death, you wouldn't be eligible to use the alternate date anyway. For capital improvements, yes - a new roof, HVAC system, kitchen renovation, and similar major improvements would typically qualify as capital improvements that increase your basis. The key test is whether the expenditure adds value to the property, substantially prolongs its useful life, or adapts it to new uses. Regular repairs and maintenance (like fixing a leaky faucet or repainting) don't count, but substantial renovations do. Definitely worth tracking down those receipts! You can add the cost of capital improvements to your stepped-up basis, which further reduces any capital gains when you sell. Keep in mind that improvements made by the deceased spouse before death would be factored into the original basis calculation, while the step-up only applies to appreciation in value.

This is excellent advice about creating a comprehensive timeline! I'm actually in the process of helping my mom with a very similar situation right now, and your suggestion about getting written explanations from tax preparers is brilliant. We've been getting conflicting advice too, and I never thought to ask them to cite specific IRS codes. The Publication 551 worksheets sound really helpful - I'll definitely look those up. One question: when you mention adding closing costs from the original purchase to the basis, does that include things like title insurance, recording fees, and attorney fees from when they first bought the properties decades ago? We have some of those old documents but weren't sure if they were relevant to the current tax calculations. Also, great point about consulting an estate planning attorney. With the amounts involved here (potentially over $500K in gains between both properties), it definitely seems worth the investment to make sure we're not missing any strategies. Did your aunt's attorney suggest any specific approaches beyond the standard step-up basis calculation?