Married couple. The wife owns a commercial condo that has been depreciated to zero (other than land value). The husband is ill. They are thinking of transfering the condo from her to him. The way i see it, when he dies there is a 100% step up in basis and all the claimed depreciation vaporizes. If I am wrong please correct me. This seems like a great planning tool.
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Depends........
Originally posted by Kram BergGold View Post
1. Is this a community property state?
2. Is there an inheritance tax problem?Jiggers, EA -
Let me get this straight now. Are you proposing that wife transfer zero basis propertyOriginally posted by Kram BergGold View Post
to husband who then dies and she "inherits" same property but with stepped up basis?
(I assume not a communist state here.)
If so, I think the IRS would consider that a two step transaction (or is it a Texas
sidestep?) and pounce on it like a cat on a mouse.
Substance over form comes to mind here.ChEAr$,
Harlan Lunsford, EA n LAComment
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Wife's
From OP it seems the property was the wife's separate property and with "zero" basis
Seems like there would be other issues involved in this as well if she transfers property to her "soon to die" husband - what about estate issues and beneficiaries?
Is there a time limit on transferred property in anticipation of death for IRS purposes and "stepped up basis" ?
Do these types of transactions paralell anticipation of Medi-Aid/Medi-Cal and Nursing Home rules, where there is a look back period for transferring assets to qualify?
Thinking out loud
SandyComment
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I think IRS would just look at the intent to inflate a value for future tax purposes andOriginally posted by S T View Post
frown.
However your idea about Medicaid rules is a good point. The would only be concerned
with FMV and not care about any zero basis. But the, it doesn't sound from OP that
the deathbed husband was faced with going into a nursing home.ChEAr$,
Harlan Lunsford, EA n LAComment
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Response to Jiggers
Not a community property state. These people have substantial assets. I would guess between 2 to 3 million, maybe more.
The husband might die in 2010 so they are trying to take advantage of the zero estate tax.Comment
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If zero estate tax
does happen that means no step up at death to beneficiaries. I do think there will be a Nov/Dec tax bill that will extend 3.5 to 2012.Comment
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I would imagine
the IRS could also look at the transfer as lacking economic substance (what's a termanally ill person going to do with a building?) and decide it never actually happened. Especially if no consideration was given by the husband.
Correct me if I'm wrong - the only reason for considering this is to eventually avoid taxes? If so, I would think the IRS would shoot it down. If they didn't, just think of all the property that would be changing hands just to achieve the step up in basis!
ATG"Congress has spoken to this issue through its audible silence."
Anyone ever notice they beat the daylights out of the definition of a child, but they don't spend much time at all defining "parent"?Comment
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If he's the beneficiary of her estate or trust there is a reg specifically disallowing and DOD basis. I don't recall the cite now but I printed it out about 15 years ago when a prospective client was told by an attorney to transfer stock to his critically ill wife and then sell it after her death at no gain so TP could invest the money with a project the attorney needed to fund.Comment
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Pub 551 concerning basis of assets under the section of inherited property states that stepped up basis does not apply if surviving spouse originally gave property to the decedent spouse within one year before the decedents death. I do recall this is based on a final reg on the subject but do not have time to research it at the moment.Originally posted by Kram BergGold View PostComment
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Thanks
jimmcg and nyea thanks for the info.Comment
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