Life Estate Questions

[Mark Goldberg]

In 2003 Mom gave daughter some of her money and her home. So for 2003 and 2004, I claimed Mom as daughter's dependent (this was based largely on the fact that the fair rental value of the home the daughter was allowing the mother to live in was quite high) and deducted Mom's medical and real estate taxes on Schedule A, and gave daughter H of H status.
Now a lawyer has corrected the deed showing a true life estate existed dating back to 2003. So what does this mean for the tax issues of dependency, medical, real estate taxes, and head of household?

I am not sure about this but it seems to me that I need to amend the 2003 and 2004 tax returns of the daughter.
As I see it, she did not own the house in 2003 and 2004. If so, then clearly she was not H of H. And without the fair rental value of the house she was providing for the Mom she would not qualify to claim Mom as a dependent. Medical also falls by the wayside if the daughter can't meet the support test.
What about real estate taxes? Can the daughter deduct these?

[jainen]

Life estate

Clearly the daughter did not provide housing to the mother and can not claim exemption, deductions, or HoH. I would try for reasonable cause on the late payment penalty, even though I actually believe the value of gifts is counted as a support payment by mother, so she was not a dependent in 2003 anyway.

[Gretel]

Support

... I actually believe the value of gifts is counted as a support payment by mother, so she was not a dependent in 2003 anyway.

I disagree. Support is what is actually spend on someone and has nothing to do with money or gifts received.

[jainen]

gifts given

Not gifts received, of course. But gifts given are like other expenses paid. Support in this context goes way beyond "necessities of life." About the only things excluded are taxes and life insurance. Entertainment, charity, and other choices are all included in the support expenses paid by the mother. In this case they far exceed support expenses paid for the mother by the daughter.

[Gretel]

Jainen

Thank you for straighten me out. Sometimes it would help to think before posting.

[jainen]

98% sure

Well, it's a nice scheme. Say my mother just lives on Social Security, no taxable income. Her exemption and itemized deductions are "wasted," but if she could give me $10,000 gift and I spent $10,000 on her support, can I claim her on my tax return? I'm 98% sure, that being the average proportion of taxpayers not audited each year.