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IRS Estate Planning and Gifting

The best way to determine the Fair Market Value of inherited property or gifting property is to engage a state-licensed appraiser who is knowledgeable about the IRS appraisal requirements.

The IRS definition of Fair Market Value is the highest price possible on the open market. The best method to determine market value is an appraisal report. According to the IRS, it’s the highest price that the property would sell for on the open market. This is the price that would be agreed upon between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.

The IRS excepts appraisals completed up to no more than 60 days before the date of donation or at the time of gifting.

The general rule when calculating the basis of inherited property is generally favorable to taxpayers. The recipient’s basis for inherited property is stepped up (or stepped down) from the decedent’s cost to the asset’s Fair Market Value upon the decedent’s date of death.

There are four ways to avoid paying capital gains. They are as follows:
1. Sell the property immediately.
2. Convert the property into a rental income property.
3. Move into the property as a primary residence.
4. Disclaiming the inheritance.

However, if you retain the property and sell it at a later date, then you will be paying capital gain. The capital gain is the difference in the value from the date of inheriting the property to the date that you sell the property. The gain or loss of the inherited property is reported in the year it is sold. At that time, you should consult with your CPA. Remember, if the property value is likely to take the estate close to or above the inheritance tax threshold of $11,580,000 it’s recommended that you get three different appraisals to help prove the property’s value to HMRC-you could then take an average of the three appraised values.

IRS gigting limits the gift of $15,000 per year to an individual. If you wish to gift more then you will need to file from 709. This form notifies the IRS of your gift. The IRS uses this form to track gift money you give more than the annual exclusion throughout your lifetime. Again, you should consult with your CPA.