Life estate and cost basis for home sale

[Burke]

I did say original cost basis, but the additional fact that her spouse/joint owner? predeceased her, means 1/2 got a stepped-up basis at his death which is the normal course of events in determining basis. So basis is 1/2 original cost + improvements + 1/2 stepped-up basis + improvements after that. It's current appraisal would not enter into basis calculations.

[FEDUKE404]

Cost basis adjustment at death

I did say original cost basis, but the additional fact that her spouse/joint owner? predeceased her, means 1/2 got a stepped-up basis at his death which is the normal course of events in determining basis. So basis is 1/2 original cost + improvements + 1/2 stepped-up basis + improvements after that. It's current appraisal would not enter into basis calculations.

Thanks. I had already put that into the "awareness file."

Problem is, all I've heard is "mom and stepfather" and no one has offered that information to the mix. I have no personal knowledge of history of parent(s) ownership.

One can only hope the attorney running all of the horses around the center ring has already properly applied those relevant facts. Of course, when the only song is "Use the appraisal, Luke!" that issue with original cost basis adjustment may not seem of much relevance to them.

I've moved on to other work with understanding I will get a definitive set of numbers "soon."

Thanks again!

FE

[peggysioux]

I did say original cost basis, but the additional fact that her spouse/joint owner? predeceased her, means 1/2 got a stepped-up basis at his death which is the normal course of events in determining basis. So basis is 1/2 original cost + improvements + 1/2 stepped-up basis + improvements after that. It's current appraisal would not enter into basis calculations.

If the grandmother and spouse lived in a community property state, wouldn't the grandmother get a full step-up basis at the time of spouse's death so the appraised value at that point in time would be the basis for all?

[FEDUKE404]

Timing issue

If the grandmother and spouse lived in a community property state, wouldn't the grandmother get a full step-up basis at the time of spouse's death so the appraised value at that point in time would be the basis for all?

Fortunately, NC is not a community property state.

Again, in the cloudy factual world of this case, it is my understanding from afar that "the appraisal" occurred numerous years after the death of the spouse, namely shortly after the life estate with the three children was first established.

FE

[TAXNJ]

Still

Fortunately, NC is not a community property state.

Again, in the cloudy factual world of this case, it is my understanding from afar that "the appraisal" occurred numerous years after the death of the spouse, namely shortly after the life estate with the three children was first established.

FE

FEDUKE. Great return for your office. Sounds like a lot of billable hours for you!

[Lion]

I might trust a lawyer to know ownership dates, who inherited what and when, life estate dates and .... But, I would not take a lawyer's word for tax attributes, such as cost basis, capital improvements, primary residence, received via gift vs. received via inheritance, etc.

[Burke]

Fortunately, NC is not a community property state.

Again, in the cloudy factual world of this case, it is my understanding from afar that "the appraisal" occurred numerous years after the death of the spouse, namely shortly after the life estate with the three children was first established. FE

It's a shame this was done, but it is quite commonplace. Any gain could have been mitigated greatly if Granny had simply deeded a 1% interest in the property to each of the children, retaining the life estate provisions with the right to sell. Hopefully, it may be possible to get tax valuations in the year of spouse's death from the local real estate records.

[BOB W]

Advanced planning; should have gifted ownership back to Granny. Then sold with $500,000 exclusion..................

[FEDUKE404]

End of story

For those of you following this saga:

Client was adamant to use figures provided by sister's CPA (even sent a copy of his 2015 Form 8949 to use).

Granny is still around, and she became widow in 1999 when property became "hers." Whether there ever was/was not a valid life estate established remains murky.

Tax values for the property were available for 1999.

CPA marked the purchase date "inherited" for the sibling, and used the value from an appraisal performed roughly five years ago. (That value is higher than the 1999 tax values available for the property.) He also marked it Code "E" although the only tax document I ever saw was a Form 1099-S. The IRS might have a difficult time finding that (nonexistent?) "Form 1099-B."

CPA's return showed a $120k loss, and each owner is claiming 25% of that on their 2015 Schedule D with a $3k carryforward for a while.

Client is content with all information reported, and my behind is firmly covered. It will be interesting to see what happens to any of the four individuals involved. . .

FE

[New York Enrolled Agent]

For those of you following this saga:


Client is content with all information reported, and my behind is firmly covered.
FE

The former may be true but I'm interested in the latter conclusion. On what basis (no pun intended) is your behind firmly covered?

[Burke]

Client was adamant to use figures provided by sister's CPA (even sent a copy of his 2015 Form 8949 to use).
Granny is still around, and she became widow in 1999 when property became "hers." Whether there ever was/was not a valid life estate established remains murky.
FE

Doesn't matter whether a life estate was specifically established in writing, although the deed from when she gifted it to the children should have it in there. It was a life estate situation since she continued to live in the home. And how on earth can they justify using FMV from 5 years ago as a "basis" when it was deeded to them as you indicate in or around the year 2000? I think you are still at risk since you have done due diligence, know how to report it, and they still want you to circumvent the law. I doubt if your clients have discussed this with the CPA who prepared the 8949. If he knows the circumstances, then he is at risk as well. They just like the results and the big loss they are going to get ---- for years to come.