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Ok, let's say that you will be able to deem your home as being sold and repurchased on Jan. 1, 2001 as described in Roy's article (I'm not hopeful that this will stay around until then) in order to increase the basis. How do you determine FMV for your home so as to be acceptable to the IRS?

An appraisal seems like the natural way to go. However, appraisals are fairly notorious for inaccuracy (after all, I'm paying a person for an appraisal, so the person appraising my house can be swayed to give me a number close to what I want).

Using the city/county/state (depending upon where you are) assessment value would seem like another way to go. However, there are problems here too. For example, State of Georgia has enacted legislation which provides for a new homestead exemption (I'm not sure how far this reaches in Georgia, but it applies to me in Gwinnett County). If you qualify (which most families do), assessment values will be frozen at year 2000 values and can not be increased until the home is sold (the new owner takes on the new assessed value). Counties are not allowed to re-assess property values for ad-valorem tax purposes until a home is sold. I'm not sure how this shakes out for school taxes, but the basic point is that the county property assessments are now regulated (to a certain degree) by state law.

Any thoughts on this from any pros in the know.

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If it were possible to use the deemed sale election for a home and exclude the gain, the way you'd probably want to establish the FMV would be with an appraisal by an appraiser (at least one, maybe two to be safe) who has the MAI (Member of the Appraisal Institute) credential.

That doesn't mean, however, that I think this is going to work. I think that part of the TRA 1997 is an unintended loophole caused by sloppy legislative drafting.

The election is allowed with respect to readily tradable stock and any other capital asset or property used in the trade or business (as defined in section 1231(b) of the Internal Revenue Code of 1986). This is poor drafting, because you can't be sure if the intent was that capital assets to which the election applies have to be used in the trade or business or if it applies to capital assets, and also to property used in the trade or business as defined by Sec. 1231(b). Also, the language providing that any gain resulting from a deemed sale election shall "be recognized notwithstanding any provision of the Internal Revenue Code" confuses things more. Sec. 121 is an *exclusion* which allows you to exclude recognized gain, but that probably wasn't the intent of the new law. So, who knows. But I think it's a really aggressive strategy, and I'm not sure I agree that it's a "nothing to lose" proposition. I would take Roy's advice in the last paragraph of his article and wait to see what's said about this. It's gotten enough press that something is likely to be said or done by the IRS soon.
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