inherited property

[Ken]

The other day I posted a thread that I was doing a taxpayers taxes and wanted to make sure about the basis.
He told me he and his mother owned a house together and she died in March of 2005.
I took half the origional cost plus half the FMV of the house at the time the mother died as his basis.
Now the problem. The taxpayer called me just now and said that he had never actually paid any money on the house and he had never lived in it. He said his mother put his name on the title so when she died there would be no problems with it.
Now if I had to make the decision, I would say that he just inherited the house from his mother and sold it a month later and sold it for the same FMV that he inherited from her and that it should not be taxable.
Does anyone else have a problem with his name being on the deed even though his mother paid for it?
I would appreciate any answers.
Ken

[Safire]

Were both names on the deed?

If so, he has only one half of the house at stepped up basis. The other half would be 1/2 of whatever her basis was at the time she gave it to him.


Edited to add: Unless there was lifetime rights document that he could not sell before she died. Then possibly all of it at stepped up basis.

[abby]

full step up

My understanding is that if there was no consideration paid, then the full asset is reportable in the estate and therefore a full step up is received.

It doesn't matter if an actual estate tax return was required - the full house is part of her estate in this circumstance.

[OldJack]

I agree with Abby... he should get full step-up in basis to FMV at date of death and report zero gain as he sold immediately after death.

[Ken]

inherited property

Thanks for the replys everyone. I had not given his taxes back to him yet, I was waiting for him to pick them up. It was my understanding origionally that he had actually helped his mother pay for the house, but now that I know he didn't, I think I'll just put it all as stepped up basis.

I was going to do that anyway, but its sure nice to get a few more opinions in these "grey" areas.

[awporbb]

inherited property

all the prior replies failed to examine what i believe is the major issue. when mommy put his name on the deed without consideration, this would be a deemed gift of 1/2 of the house. of course, i'm sure all respondents are aware that son then would have to pick up 1/2 of mom's COST basis. However, it is also possible that perhaps mom inherited house when husband died? if so, you have another set of issues.

[Burke]

Exactly. There is no way he can get full stepped-up basis on the house when Mom died unless there was a life estate on the deed. When she put his name on the ownership documents, she effectively gave him half of her basis. Only if the gift was within 3 years of date of death would it have been included in her estate.

[Gretel]

Burke, where do you get the 3 years from? Maybe because of Medicaid? My understanding is that the full value of the house will/would be included in the Estate tax return if no consideration paid - no time limit.

[Gene V]

Burke, where do you get the 3 years from? Maybe because of Medicaid? My understanding is that the full value of the house will/would be included in the Estate tax return if no consideration paid - no time limit.

Maybe from TTB SB10-31

Transfers made within three years of death (IRC §2035). If the
decedent gave any of the property listed below or relinquished a
power over such property within three years of death, the value
of the property is included in the gross estate.

• Gift tax paid by decedent on gifts made by the decedent or
spouse within three years of death [IRC §2035(b)].

• Life insurance policies on the decedent’s life.

• Retained life estates and reversions under IRC Section 2036 and
Section 2037.

• Revocable transfers, IRC Section 2038, except transfers from a
decedent’s revocable trust. A revocable trust is a grantor trust
under IRC Section 676. [IRC §2035(e)]

[OtisMozzetti]

This thread started 2-1/2 years ago.

Did everyone notice that this thread started about 2-1/2 years ago, and then someone rolled in now during Sept. 2008, followed by a firestorm of 4 replies? It does seem that the new discussion raises a very valid issue.

[Gretel]

Maybe from TTB SB10-31

Transfers made within three years of death (IRC §2035). If the
decedent gave any of the property listed below or relinquished a
power over such property within three years of death, the value
of the property is included in the gross estate.

• Gift tax paid by decedent on gifts made by the decedent or
spouse within three years of death [IRC §2035(b)].

• Life insurance policies on the decedent’s life.

• Retained life estates and reversions under IRC Section 2036 and
Section 2037.

• Revocable transfers, IRC Section 2038, except transfers from a
decedent’s revocable trust. A revocable trust is a grantor trust
under IRC Section 676. [IRC §2035(e)]

I think we have two different issues here. One is a transfer - 100% - see above.

The other is joint tenancy. I still believe if it is joint tenancy then the time doesn't matter.

[abby]

TTB Deluxe Edition 21-26

See this page for discussion of Gifts of Joint Tenancy - in particular:

Joint Tenancy and Real Estate:
If the original owner is still a joint tenant at death, property is included on Form 706 and receives step-up basis.

[Burke]

Did everyone notice that this thread started about 2-1/2 years ago, and then someone rolled in now during Sept. 2008, followed by a firestorm of 4 replies? It does seem that the new discussion raises a very valid issue.

Nope, missed that entirely. Reason is the date shows up at the top but inside a very dark red bar and difficult to notice. Will pay better attention next time.