Cost basis is confusing right now

Q. My mother passed away last month. She purchased her house for $18,500 in 1963. My sister and I inherited it, and we have it on the market for $435,900.

I have spoken with two different CPAs about the tax ramifications of selling her house. Both say that while there is no federal estate tax in 2010, when we sell we would be required to pay capital gains taxes on a “carry-over” basis rather than a “stepped-up” basis.

In other words, both say we would pay taxes on the difference between the sale price and her original purchase price, rather than the difference between sale price and the value of the property on the date of her death. Both CPAs say this may change, but Congress has not taken any action yet.

I am considering pulling the house off the market and renting it out for a couple of years to see what happens. Unfortunately, we cannot rent for enough to cover all the expenses, so we would be taking a loss every month. Is it true what the CPAs are telling me?

A. I realize you've consulted more than one accountant, and things are pretty confusing for everyone right now. Here's what my own CPA e-mailed me in a response to a similar question last week:

“Their basis is market value at the parent's date of death (if they inherited it). If it was gifted, the basis is the giver's basis. In 2010, we did lose stepped-up basis for large estates, but all estates in 2010 can still step up to $1.3 million of basis. Prior to 2010 all [inherited] assets had the basis stepped up.”

So our accountant says you can indeed use stepped-up value, as of the time of death, as your cost basis.

By the way, your mother's cost basis was a lot more than the original purchase price. If both your parents owned the property, basis could have changed when your father died. Cost basis is also increased by the amount spent on permanent improvements over the years — the last new roof, new furnace, air-conditioning, carpet, landscaping, and even a new towel rack.

As for what will happen after the end of this year — nobody knows. Like the rest of the federal estate tax, it's all up in the air.

Q. Hello! I read your column all the time. Last week, you repeated what you've been saying for the last four years during the worst housing crisis we have ever had: “if you haven't had any offers, your price is still too high.”

WHAT? You can be a hero here. Stop the madness. We are at the bottom! Houses are selling for less than what it cost to build them, including materials and labor. You cannot possibly condone this.

Step up to the plate and say enough is enough — all it is going to take is one voice! Please! Let it be your voice! You will be famous!

A. Wouldn't it be wonderful if just one voice could solve the housing crisis? I'd be delighted to be a hero and say whatever would do the trick, even if it didn't make me famous.

Meanwhile, I'll continue trying to help people cope with reality. And at least you've had your say in the newspaper.

Q. We live in a rural area, and there are several homes in our area for sale. What's the best way to make ours stand out to potential buyers?

A. Set a bargain price.

Q. A few years ago, we purchased a time sharing at Hilton Head and now would like to sell it. We paid cash for it, so it's free and clear. Can you give me the name of a reputable company that deals with time sharing?

A. First, contact the developer at Hilton Head to see if they'll buy it back or — I don't know the market there — if they'll even take it back as a gift.

Beyond that, talk with local realty firms to find out if time sharing are salable. In some areas, you can't give them away.

I don't have a firm to recommend, but I have one big caution for you. Don't pay anyone anything upfront to market or advertise your time sharing. If local brokers do think there's a market, be prepared to offer a large commission rate. Otherwise, it's not worth a broker's time and effort to market something at a relatively low price. But make sure commission won't be payable until the place is actually sold.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

Copyright: 2010, Creators Syndicate Inc.