Q: My wife and I own a duplex with a $160,000 tax basis and a $1 million market value. Upon the death of the first of us, our daughter will inherit the deceased's half of the property. What will her tax basis be?
A: Your daughter's share will be valued as of the date of death of the deceased. If the property is worth $1 million at that time, her tax basis would be $500,000.
A question that you did not ask is what will be the value of the surviving spouse's share? If the property is held in joint tenancy, the survivor's share is set at half the original tax basis, or $80,000. However, if the property is held as community property, the survivor's share is subject to being stepped to the value on the deceased spouse's date of death. Given a $1 million market value for the property, the value of the survivor's share would be set at $500,000.
Q: In a recent column, you said a home purchased in a foreign country would qualify as a replacement house for the purpose of deferring the recognition of a gain on a home sale. I am stationed in Japan and will be transferring back to the United States soon. If I buy a home there, may I defer any gain I have on the sale of my house in Japan?-J. L.
A: Yes. U.S. citizens living abroad are entitled to defer taxes on their home sale gains in a foreign country by purchasing a home of equal or greater value in the United States.
You might also be interested to know that for workers abroad, the replacement period -- typically 24 months from the date of the home sale -- does not begin until you return from your overseas assignment.
Carla Lazzareschi cannot answer mail individually but will respond in this column to questions of general interest. Please do not telephone. Write to Your Money-Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.