I sold an interest I had inherited. I have no idea how to calculate the cost basis of the interest at the time of inheritance. I’d be grateful for any suggestions or into. Thanks.
You will have to establish the value at the time of death in order to claim a step up basis.
CAD values are usually lower than actual, but could serve as a good starting point. It’s important to note that your basis will be decreased a depletion is claimed.
It would have to be CAD value at date of death which may be very hard to find after more than 5 years. Better to look at probate records or federal estate return form 706 to see estate value. The value may have been negligible if inherited at a time when oil prices were very low and there was no drilling.
I’m not an accountant and this is not tax advice. However, we’ve always used the price of oil when you inherited vs when you sell. For example, if you sold for $1,000,000.00 when oil was $80 and you inherited when oil was $40 then you could use the step up basis at $500K. This could give a reasonable estimate and the IRS will generally accept the reported cost basis if it is reasonable and calculated using relevant historical data. However , if they were to push back or you were to get audited, you could be required to conduct a formal valuation of the value at the time of inheritance.
That may have worked, but it is not in compliance with federal tax law.
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You should have determined FMV at DOD. I assume did not so was there a substanial time between selling and DOD? and how $ are we talking?
Thanks for your response. It has been 8 years between the DOD and the sale. The sale price was just under $20K. Any further inout would g=be greatly appreciated.
I thought there might be less time between inheritance and sale - say only a few months - so you can just use the sales value as cost basis. If I ask my friend Google there is a thing called “retrospective appraisal” which I know little about.
btw, I am a CPA (not practicing) and my wife inherited some MR - so I am curious. Her’s are primarily non-income producing so we’ll have an easier decision - seems like it my take a few $ to have the deeds changed which is not worth it - but there may be some sentimental value
the other alternative is to use the amount your parents paid for it - if you know it. yes, larger CG but you save $ on not having to get an appraisal. probably was bought several years ago
oil? gas? both?
best of luck
If the minerals are producing, then the basis at time of death must be reduced by all depletion over the last 8 years, down to (but not below) zero. Many long-term owners have a zero basis.