Adjusted Basis and Cost of Sale-Hawaii

[momona]

Property is located on island of Maui. Taxpayer lives on island of Oahu. Taxpayer's father purchased the home with his mom in 2004 who died a few years later. He became the sole owner of the home.

I remember reading somewhere that said when real estate is owned by parent and child and one dies, there is no step up in basis.

In 2015, the State agreed to make the taxpayer's father a ward of the state but while waiting for housing, he was allowed to stay in his home.

Taxpayer traveled between the two islands for various court proceedings including but not limited to obtaining the home and later, getting it ready for sale. Maui County recorded the sale of property to her in April 2016 Taxpayer's father was placed in assisted living in November 2016.


1) Could anyone verify my saying that there is no stepped up basis in this case?
2) Can taxpayer add airfare, rental car and hotel costs to basis when she flew to court for proceedings to acquire the title?
3) When she traveled to get the place ready to sell, could she add the hotel and airfare costs to the selling costs? I'm assuming that meals are not a deductible in questions 2 and 3.
4) During the time the father lived there without title and without paying rent to the daughter, she maintained the place at her own expense, with the intent of selling it once he was placed.
Would she be able to use any of these payments towards the selling costs?

He had no money to take care of the place that he was living in for free. I am assuming that because he was a ward of the state, she would not be able to take him as a dependent.

She had to maintain the place not only to keep him safe but to at least minimally maintain it so she could sell it.

5) Is it fair to assume that anything she paid prior to her getting to title, she can't use towards the sale of the cost of the house?

Thanks! Any help and guidance would be appreciated.

[momona]

Okay I found part of the answer to stepped up basis.

If the parent did not hold the real property in a trust and the property was held as tenants in common, there is no stepped up basis.

[taxea]

Okay I found part of the answer to stepped up basis.

If the parent did not hold the real property in a trust and the property was held as tenants in common, there is no stepped up basis.

Where did you find this information? Tenants in common are 50/50 owners of the same property. At the least Dad gets a step of of Mom's 1/2.

How did you acquire the property on your first trips? Quit Claim? Transfer Deed? Inherited 1/2?
Did you then own the property or do you and Dad share the ownership?
Was Dad your dependent during the years he lived in the house after Mom died? Who owned the home during this time?
The IRS would probably allow cost of sale expenses if they don't exceed 6 months prior to the sale and your travel allocated to actual time spent for that purpose only. Be sure not to include any travel for personal purposes.

[Burke]

I had the same reaction. Equal tenants-in-common own 50% each of the real estate. At the date of death of either party, their 50% ownership goes into the deceased's estate and transfer of ownership is controlled by the will if there is one, and operation of law if there is not. What is your source that says otherwise? Did we not deal with this same scenario in a prior post??? And the courts were involved?

[momona]

Tenants in common can own unequal share of the property.

I think there is confusion with the relation of parties: taxpayer's dad and her grandmother initially lived and acquired the home. None of them were ever her dependents. But question of stepped up basis allowed/disallowed on grandmother's death is moot because I found the deed and property was not held as Tenants in Common.

http://financialalternatives.com/2014/step-up-in-basis-rule-common-mistakes/

[taxea]

Different percentages just change the amount of the FMV at death. Appraisal at DOD of first raises the basis of the survivor by the %age owned by the deceased. When survivor dies the appraisal gets done and the FMV at her time of death raises portion of the basis by her %age in the property plus the basis she got from the first to die.
If inherited the basis to heir is the FMV appraisal at time of survivor's death.

So what happened after he inherited grandma's share? Who owned it at the time of his passing?

[momona]

He had a RLT and he was the sole owner. He is still alive but a ward of the state, but the judge gave her and not the state, the Maui property. When I looked at the trust, it clearly stated that she had the right to "gift" any of her dad's assets to herself to get him on Medicaid.

I put quotes around gift because that is what the trust doc said. So the basis before any improvements is based on the property being a gift.

[taxea]

Her basis is FMV of property at time it was gifted to her.

[Lion]

I'm weak on estates, but when you say she received the property by gift, then isn't her basis then his basis? The giftee receives the basis and holding period of the gifter, right?

[Burke]

Lion, we thrashed this situation out in a prior post from Momona dated 4/8/17 and I believe you had a post in that thread. It was never resolved as far as I can tell.

[taxea]

I'm weak on estates, but when you say she received the property by gift, then isn't her basis then his basis? The giftee receives the basis and holding period of the gifter, right?

You are right i was thinking about FMV on an inheritance at his death. This was a very foolish move on her part. I suppose that's what happens when there is no patience and greed is the factor. I doubt Medicad will agree with this don't they have a rule about two-five years on transferring property to avoid exactly what they are trying to avoid?