Sale of life estate prior to death of life tenant. who pays tax on sale ?

[pjpest]

Sale of life estate prior to death of life tenant. who pays tax on sale ? Both tenant and remindermen? Basis ? Gift at time of transfer?

[TAXNJ]

See "Life Estate" in TTB tab 21

[pjpest]

Thank you. I did read that info, but was not clear whether it was considered a gift for gain or loss purposes and if you could report a loss on the sale by the remainder. I have the calculations for the division of proceeds.

[New York Enrolled Agent]

When the property is transferred and the life estate created, the basis at that time is allocated to the Life tenant and the Remainderman. Use Table S and the §7520 rates at the time of the transfer. Whether the gift is completed or not depends on the facts but typically it is a gift of future interest and the annual exclusion is not applicable.

In the absence of any adjustments, the total shared basis remains uniform but the basis factors for the life tenant and remainderman change due to the passage of time. If the property is sold as you describe it, there are multiple sales. The Life Tenant has sold his/her share. the Remainderman has sold his/her share. The Life Tenant can available themselves of the §121 exclusion (assuming the ownership and use tests are satisfied - see RR 84-43). The Remainderman reports the sale as a capital gain (if applicable). Others may disagree but I don't think the Remainderman can have a loss on the house which I view as a personal asset.

[pjpest]

Thank you for taking the time to clarify. It was very helpful.