Shirley B. Whitenack was quoted in the Star-Ledger’s Biz Brain column on April 10, 2012:

“Q. My father died in Maine last October and as executor of his estate, I’m trying to figure out how to value his house. He paid $130,000 about five years ago. Two appraisals suggest we could put it on the market for about $115,000, but a more realistic selling price would be $105,000—just enough to pay off the mortgage. How do you determine the cost basis? If we sell at a loss, can it be applied to my father’s 2011 tax return, or can my sister and I take the loss? What would happen if we just stopped paying the mortgage and let the bank foreclose instead?”

“A. ….‘The basis of inherited property equals the fair market value of the property at the time of death,’ said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park. ‘In this case, the basis would be the value of the property in October 2011’ …. The capital loss is the difference between the basis of the property and the sales price,’ she said.
                “Capital losses can be used to reduce capital-gains taxes from the sale of other assets in the same year. If the loss exceeds the capital gains, then that loss can be used to offset the heir’s ordinary income by $3,000. Additional losses can be carried forward by the heirs and used in future years. The loss is not applied on the tax return of the person who died, she said.”
                “if the executor—you—stops paying the mortgage, that’s another matter. Whitenack said the lender can ask for a judicial foreclosure. The lender can also seek a deficiency judgment for the difference between the sales price and fair market value of the property.
                “‘If the lender prevails in the deficiency action, then the deficiency would have to be paid from any other estate assets.’ Whitenack said. ‘The executor may want to explore alternatives, such as a deed in lieu of foreclosure, where the property is conveyed to the lender, or a short sale, where the lender agrees to take an amount lesser than the mortgage upon the sale of the property.’”