Life estate calculation

[ttbtaxes]

Hard as it may seem I've never had a client with a life estate so I am fumbling around and would really appreciate some direction.

My client is the daughter.

Facts:

1994 - Dad buys residence for $215,000

2004 - Dad transfers residence daughter and son reserving a life estate.

2010 - Dad goes into assisted living

2012 - Daughter sell's her interest to brother for $95,000 and has 3 appraisals that the FMV of property is $190,000

2013 - Dad dies.

How do I approach calculating her basis?

[oceanlovin'ea]

She sold her interest in the house the year before. it belongs to her brother. So I don't think she has any interest in the house.

Or am I missing something? I have never had this situation before either.

Linda, EA

[ddoshan]

In 2004 when the transfer took place I suspect you look up in a life estate remainder table which can be googled and found. This table should give you the % ownership of each at the time and is based on the fathers age and life expectency. As years go by the % of ownership gradually changes, with the kids basis gradually increasing. So when the sister sold the home to her brother she would have a basis and possible gain or loss on the sale. I believe sons basis would be what he paid his sister, plus he would get the step up fathers remaining basis, plus whatever his was in the process.

Know this didn't answer much as I would have to go and research and review to get exact. Just giving general ideas above. It may be that you only have to look into the remainder table as of the date of sale in 2012 to find the % to apply to the original 215,000 to find the sisters basis.

[ddoshan]

I just googled life estate remainder interest table and I think you just go to that. Say dad is 80 in 2012 when sister sold to brother. Table will show dads remainder interest % and siblings remainder interest. Apply the sisters appropriate % to the 215,000 to come up with sisters basis. At least I believe that would suffice.

[Gretel]

2004

I have one question concerning the year of question. Depending on gain or loss on sale the basis might be the lower of cost or FMV at time of transfer.