What do you know about Capital Gains?

After 23 years of being a REALTOR®, I learned something so IMPORTANT, I need to share. 

I knew about capital gains, that a couple is exempt from the first $500,000 gains and the single person has the first $250,000.  And I knew the gains were based on the initial purchase and costs subtracted from the sales price, minus costs to close and any improvements made to the home throughout the ownership. What I didn't know was the basis changes once a party in ownership dies and the other joint tenant stays in the home.   Once the spouse/joint tenant dies, it triggers the start of a new basis. 

So let's take this into reality*. Betty and Dan buy a home in 1977 for $55,000.   Betty passes away in 1987 (triggering a new basis event).  Dan lives in the home until 2015 when he sold the house for $465,000. And now it's tax time when the request comes in to provide a market value for the home in 1987. WHAT?!!!   My MLS doesn't go back that far, I mean, that's pre-computers!  So I go through public records and find the 1987 value to be $70,000. Except Dan's daughter bought a home in that neighborhood in 1987 and remembers the pricing more like $200,000. But without any other documentation, $70,000 has to be their basis.  Here's the importance of a correct valuation:  Dan is going to pay capital gains on [($465,000-$77,000) - $225,000] $138,000 instead of [($465,000-$200,000)-$250,000] $15,000. 

What does this have to do with you?  How about providing a service to the survivor by providing a CMA for the date of death, and suggesting they file it away with the wills, attorney or in a safe to be used in the future. Don't you think Dan would have appreciate that?  Or if you are the consumer, ask your REALTOR® to create a market value analysis for the date of death. And then put it away in a safe spot, with your will or your attorney. 

*The basis used is for conceptual value only. I did not include all costs the determine a real basis. It's best to consult your CPA to find out all the costs you can include to minimize the sum the capital gains will be based on.