Tax Credit Issue On HUD1
Hello!
I purchased 2 properties last year in Indiana. Property taxes were undergoing a reassessment and were 2 years in arrears. The sellers credited to me at closing, the "estimated" taxes that would be due up to the date of closing. 2 problems:
1. On one of the properties, the credit given assumed the owners had filed for their exemptions, when I got the tax bill this year they had not - Credit given was about $400, tax bill was $1500.
2. On both properties, due to the reassessment, the credits given were much under what they actually turned out to be, 4x more to be exact.
Do I have any recourse on recouping the tax credits for both situations above? The closing documents seem to indicate any discrepency is between the buyer and seller, can I contact them and try to get the difference?
Thanks for any help!!!
Mike
To my knowledge, those estimated taxes and just that...estimated. They could be higher or they could be lower. It is my understanding that the estimates given are final and cannot be recovered if the taxes go up more than the credits allowed for.
First comment ... I do not usually deal with estate issues ... that said, hopefully someone can come and either confirm what I suggest or correct it.....
If the house is sold within the estate, I would presume that the estate would pay the capital gains on the property... which could lead to quite a large tax bill for the estate.
The IRS states that the basis of inherited property is the market value at the time of death of the decedent. That said ... the capital gains would be split three ways (assuming there is an equal split between the three heirs) on the appreciation since grandmothers death ... which should be minimal (making assumptions here -- I know!)
My thinking would be if she died recently there would not be much of an appreciation unless you are in a rapidly appreciating market and hold the house for a long period of time.
First, I’m sorry to hear about your grandmother passing.
I’m not a lawyer or CPA, so please take this for what it’s worth. But I recently went through a similar situation.
The 3 children need to determine if there is a will and if probate is required.
In my case, probate wasn’t required, so the sale was really quite easy. There were a couple of additional forms submitted to escrow at the time of sale, and that was pretty much the only thing different than any other sale.
Tax-wise, it was treated exactly like fbprop indicated. The only potential taxable income was the difference between the sales price and the property value at the time of death. In my case, it was zero.
For example, if your grandmother’s house was worth $80k at the time of death, and it sells for $80k, and let’s say $40k was still owed, then the three children would split the remaining $40k tax-free. Unless a will stipulated it be distributed otherwise.
But I would definitely recommend they get an attorney that specializes in this, just to make sure everything is handled properly. And a good CPA wouldn’t hurt either.
Hope this helps.