Moms house titled to daughter

[equinecpa]

Years ago, mom wanted to buy a house near daughter. She buys a house that needs a lot of renovations. To make getting permits and renovations done simpler, she puts title in daughters name. Mom pays for house and all renovations, property taxes etc.

Fast forward 20 years. Mom lives in house for many years then passes away. Leaves everything to her 2 daughters.

My client one of the daughters has all the documentation -of course still in her name.

Will the substance of this transaction take precedent over the titling? There was only a small gain on the house but of course my client would like to avoid paying tax on it....

[Bees Knees]

Will the substance of this transaction take precedent over the titling? There was only a small gain on the house but of course my client would like to avoid paying tax on it....

Its anyone's guess how IRS or the courts would rule on this. The courts do sometimes look at the substance over form.

If it were my client, I would inform her of the technicality problem. House was titled to her. Mom paid for it. Paying for something that is owned by someone else is basically a gift. Therefore, gift rules apply, and daughter’s basis in house is mother’s basis.

However, I would then inform her that the substance of the transaction is that it was the intent of both parties that Mom pay for and own the home. At her death, daughter inherits the house and gets stepped up basis to fair market value as of the date of death.

Then inform the client you cannot be sure how IRS or courts would rule, but it is worth fighting for stepped up basis as there is a good chance the courts would rule substance over form.

Put all this down in writing including your client’s decision.

[FEDUKE404]

NOT stepped-up

I've seen several instances of this, one of note being where a "wealthy" man transferred ownership of his high-price beach condo to the kids several years before his death.

When that property was later sold, several of the siblings reported their share as being "inherited" with the stepped-up cost basis whereas the lone sibling (my client) was aware they were wrong and tried to come up with her portion of the original cost basis+improvements. (I don't recall if gift tax was ever a factor.)

It's for the lawyers to figure out, but in this situation I would vote for the property becoming that of the daughter way prior to mother's death. It might be an interesting side inquiry to see who was paying for/claiming on their own taxes the property taxes/finance charges.

FE

[taxea]

What is mom's DOD? If 09 then basis is stepped-up with an appraisal at DOD.
The rest of it is for the children to battle out in court if the deed is in TP'S name only and the will gives the house to both of them.

[taxea]

If deed was not held by both mom and daughter there is no step up in basis.
The rest of it is for the children to battle out in court if the deed is in TP'S name only and the will gives the house to both of them.

[equinecpa]

LOL...proceeds already divided without court battle. Not EVERYONE ends up in court.

The facts of this case were actually as I typed them -no ulterior motives, no conniving...just a wish to get work done without aggravation for permits etc. Mom paid for everything including property taxes. Taxpayer and I discussed we will treat as Mom's house.

thanks for all the comments