Estate planning

Real Estate Group Newsletter – Summer 2023 – Landlord and Tenant – Lease Contracts


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How do houses pass after death?

Tamara Partridge, CPA MST

One of the many questions that can arise after the death of a loved one concerns the future ownership of their home — and how moving that home might affect the tax liability of the new owner and the property itself. Read on for a brief summary.

Who owns the house?

Several factors determine home ownership after death, including whether the home is jointly owned and, if so, how (state laws also affect the outcome).

Sole owner

If the deceased is the only name on the home deed, the property will generally go through the probate process before it is passed on to the beneficiary named in the will. If there is no will, state law will determine the outcome. In Illinois, for example, the intestate law generally gives the surviving spouse half of the entire estate, with the other half going to the children of the deceased. In the absence of a surviving spouse or children, the children or the spouse, respectively, receive the entire estate. Parents, siblings and other relatives are also in the intestate line of succession.

Jointly owned as a couple

Married couples usually own their homes as joint tenants with right of survivorship. In other words, if one spouse dies, the surviving spouse receives the deceased’s share, even if the deceased named a different beneficiary in their will. A will is not necessary to initiate the transfer process, but the surviving spouse will need to do some paperwork to show their sole ownership.

Note: Ownership is treated differently in and between community ownership states. For example, some community property states offer the option to retain the community property with right of survivorship. Consult an appropriate professional if you live in a community owned state.

Jointly owned by an unmarried couple

Unmarried co-owners are usually treated as joint tenants. Upon the death of one of the co-owners, his share of the home generally will go to the beneficiary specified in the will. This could, of course, be the surviving co-owner, but it could also be a different individual. In the case of an intestate, the applicable intestate law will determine who receives the deceased’s share. It is worth noting that intestate laws do not distribute assets to individuals outside the family. If there are no family members, real estate generally becomes the property of the county in which it is located.

Related reading: Real estate and divorce: Here’s what you need to know

What are the tax implications?

Thanks to a concept known as an “enhanced basis”, heirs can generally sell the property immediately without recognizing the capital gain. Under federal tax law, the tax basis in inherited assets “steps up” to their fair market value at the time of the owner’s death (or, if the executor chooses, at an alternative valuation date six months after death).

A surviving spouse can also benefit from a $500,000 full exclusion for the sale of a principal residence if the sale takes place within two years of the spouse’s death, assuming other requirements are met. If more than two years have passed, the surviving spouse can exclude only $250,000 of any gain from the sale.

What about real estate tax? Assets validly inherited by the spouse qualify for the spousal deduction and are not subject to taxation. Furthermore, the exclusion of estates (currently $12.92 million) means that most estates escape the tax.

Estate planning can anticipate problems

The best way to avoid unintended consequences related to home ownership after death is to create a comprehensive estate plan. Whether through a will, living trust, transfer on death deed or other means, you can protect your home for your loved ones and reduce the odds of a lengthy probate process, or worse, a court battle.

For more information, please contact Tammy Partridge. visiting To know more about our site The real estate group.

How to make the most of investment opportunities in the current opportunity area

Irina Heyer, CPA

In an effort to stimulate investment and job creation in low-income communities, the Tax Cuts and Jobs Act of 2017 created Opportunity Zones across the country. While deadlines written into the legislation limit some of the potential benefits at this point, even taxpayers who invest now can enjoy some significant tax advantages.

Opportunities in a nutshell

The IRS defines “qualified opportunity zones” (QOZs) as economically distressed communities located in urban, rural, suburban, and tribal areas where certain new investments are eligible for preferential tax treatment. More than 8,700 communities qualify, including many in Cook County and other areas of Illinois. Depending on when you invest in a QOZ and how long you hold your investment, you can defer, reduce or even eliminate capital gains taxes.

To benefit, you need to invest the “qualifying gains” in a Qualified Opportunity Fund (QOF) in exchange for an equity stake in the fund. QOFs are required to maintain at least 90% of their assets in QOZ properties, including investments in QOZ businesses and new or significantly improved commercial buildings, equipment and multi-family complexes. QOFs can be corporations or partnerships. Eligibility and approval to become a QOF occurs when corporations or partnerships file Form 8996 with the entity’s federal income tax return.

Qualified gains include both capital gains and qualifying securities. 1231 gains (i.e., gains from the sale of real or depreciable business property) that will be recognized for federal income tax purposes before 2027. Gains that arise from a transaction with a related person are not eligible.

You generally must invest the gains within 180 days of the sale that resulted in the qualifying gain.

Related reading: The IRS proposes regulations on Opportunity Zone tax incentives

Capital gains tax liens

The potential tax savings are significant. For starters, you should defer the gains you invest until December 31, 2026, whichever comes first, or a listing event occurs (eg sales or gifts of your QOF benefits or QOF liquidation). The amount of deferred profit you will then include in your taxable income depends on: 1) the fair market value of your QOF investment on the date of the inclusion event; and 2) adjustments to the tax basis for that qualifying investment.

Reducing capital gains

The longer you hold QOF interest, the higher the tax benefits. If you hold them for at least five years, your basis increases by 10% deferred gains, which means you’ll only pay capital gains tax on 90% of the gains when they’re taxed. If you hold your investment in QOF for at least seven years, the principal increases by an additional 5% of the deferred profit, so you only pay capital gains tax on 85% of the profit.

Obviously, new investors have missed out on the opportunity to enjoy the benefits of the increased basis, but early investors can increase their benefits by holding their investment in QOF until they reach the above milestones (assuming the milestones occur on or before December 31, 2026). . It is also not inconceivable that Congress will extend the program. New investors may benefit from simply deferring qualifying gains for a few years.

Eliminate capital gains

Taxpayers who invest in QOF at any time up to December 31, 2037, can enjoy a tax-free appreciation of their investment. When you make the choice to defer profit by investing in QOF, the tax basis on the investment becomes zero, but if you have held your investment for at least 10 years, you can permanently exclude the gain from the investment if you choose to increase the basis of the investment to its fair market value on the date of sale or exchange.

Related reading: The deadline for COVID-19 Qualified Opportunity Zone relief is approaching

Take the first tax steps

In order to ensure that you are following the rules, considering all potential implications and filing the appropriate paperwork, consulting with qualified opportunity fund tax advisors can be a first step in the investment process.

QOF requirements

  • It must be organized as a company or partnership for the purpose of investing in QOZ real estate

  • LLCs qualify if they choose to be treated as a partnership or corporation

  • Submit Form 8997, “Initial and Annual Statement of Qualified Opportunity Fund Investments.”

  • To make the choice to defer your qualifying gains by filing IRS Form 8949, “Sales and Other Dispositions of Capital Assets,” for the taxable year in which the gains will be recognized.

  • Opportunity funds are the investment vehicle required to invest in opportunity areas

  • Investors have 180 days to invest capital gains in a Qualified Opportunity Fund that invests in Opportunity Zones

  • Opportunity Fund investments in real estate are subject to substantial improvement or original use requirements.

real estate requirements

A property that meets the qualification requirements for Opportunity Districts must have been acquired after December 31, 2017, and meet one of the following two conditions:

  • Significant Improvement: A property is significantly improved when capital improvements in the 31-month period following acquisition exceed the purchase price of the property, excluding land value.

  • Original Use: The Opportunity Fund must prove that it was the first to use the property while the property was in existence, or that the property has been vacant for more than a year and has been put to commercial use.

For more information, please contact Irina Heyer. visiting To know more about our site Real Estate Group.

The content of this article is intended to provide a general guide to the subject. It is advised to take the advice of specialists in such circumstances.


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