Sale of House

[fran]

What is the cost basis for a gifted house without life estate. The parents are still living. The house was purchased by the parents some 30 plus years.

[Gary]

The cost basis is the parents' cost basis.

Gary

[Jesse]

Not your question but

You should file a gift tax return with the basis being the cost of the house plus any improvements.

Also, remember if the parents continue to live in the home until death and pay for upkeep on the property an implied life estate is created and the children's basis in the home will be the FMV on the date of death.

[Unregistered]

f the house was originally the parent's residence, there's a very good chance that there basis is well below cost due to rollover of gain under the old 1034 rules.

[Gary]

"You should file a gift tax return with the basis being the cost of the house plus any improvements."

The parents file the gift tax, not the recipient of the gift.

Gary

[Jesse]

Sorry

I'm sorry, I should have said "a" gift tax needs to be filed, and yes that should be by the parents. My main point was the "implied" life estate should not be overlooked.

[S T]

Gift and Sale

You should file a gift tax return with the basis being the cost of the house plus any improvements.

Also, remember if the parents continue to live in the home until death and pay for upkeep on the property an implied life estate is created and the children's basis in the home will be the FMV on the date of death.

Just met with two clients (brother and sister). They just sold their mother's residence 5/2005 so she could be moved to a retirement home. In December 1996, their step-father changed the deed on the property from his and mothers name to the Brother and Sisters name, (an attorney advised them to do that). The step father and mother continued to live in the residence, pay the property tax, insurance and upkeep.

Now since the house was sold the 1099 S form was issued to the brother and sister. Based on Jesse's post above, could it be that we can use the FMV as of the date of death of the step father which was 2/05. And then we need to file gift tax returns back to 1996?

Sandy

[Black Bart]

Stepped-up Basis/ Sandy-Jesse

Based on Jesse's post above, could it be that we can use the FMV as of the date of death of the step father which was 2/05. And then we need to file gift tax returns back to 1996?

Sandy

Sandy/ Looks like you're reading Jesse's post the same way I am; that is, is it possible to get the benefit of an "unofficial" life estate (or lifetime "dowry" as they call it around here) after the parents have died? I wasn't aware that there was such a thing as an "implied" life estate.

Jesse/ You're saying that even though the legal papers creating a life estate were not formally drawn up during the parents' lifetime, the fact that the parents continued to live in the house after deeding it to the kids creates an "implied" life estate which is just as valid as legal documents and has the effect of allowing the use of FMV (stepped-up basis) at the date of death of the last parent to die whenever the kids sell it. Is that correct? Thanks.

[Jesse]

NATP seminar

At a NATP seminar I attended last summer we reviewed Life Estates and learned that the presumption of an implied life estate can be created, if based on the facts and circumstances, there isn't a written instrument stating a person retains a life estate.

It gave an example in the book where a person gifted a residence to her children but continued to live in the home until her death and was free to use the property in any manner she wished, she also paid for the upkeep on the property. "Under Rev. Rul. 78-409 and 70-155 an implied life estate was created" and the children's basis in the entire value of the home is the FMV on the date of death.

[Gretel]

Woudn't this than also mean that it actually was the mother who sold the property after her husband died? Thus Sec. 121 exclusion.

As I read it, the children never occupied the house or paid any expenses.

[S T]

Life Estate

More questions
Step Father died 2/05, then sold house 5/05. Mother lived in home until date of sale. So even tho title was transferred to the children, could Mother report sale as personal residence, or do the children report the sale, and if children report the sale would it still qualify as life estate with step up to FMV?

1099S form is issued to the children (brother and Sister).

Sandy

[Jesse]

Sorry - Didn't read back enough

Just met with two clients (brother and sister). They just sold their mother's residence 5/2005 so she could be moved to a retirement home. In December 1996, their step-father changed the deed on the property from his and mothers name to the Brother and Sisters name, (an attorney advised them to do that). The step father and mother continued to live in the residence, pay the property tax, insurance and upkeep.

Now since the house was sold the 1099 S form was issued to the brother and sister. Based on Jesse's post above, could it be that we can use the FMV as of the date of death of the step father which was 2/05. And then we need to file gift tax returns back to 1996?

Sandy

Oops - I was looking at Black Bart's post - I thought your post was from December. I'm at a loss.

I wouldn't think the implied life estate would apply because Mom has moved out of the house?

Section 121 would not apply becuase it is the childrens residence not Mom's unless the implied life estate does apply.

[Jesse]

No research just my thoughts

Since house was gifted in 1996 I think you are still out of luck on the section 121 rules and the "implied" life estate. The house was owned and sold by the children.

[S T]

Life Estate

Thanks Jesse,
The attorney that dreamed this one up sure did not do any favors for the children or the parents. A simple trust would have been just fine! So I guess the children will have to pay the capital gains, based on the donor's basis.

The sad thing is that they are using the monies to pay for Mom's care at the retirement/assisted living, she is 98 years old, and after all the house was hers and the money is hers.

Sandy

[Black Bart]

Jesse - Life Estate

Since house was gifted in 1996 I think you are still out of luck on the section 121 rules and the "implied" life estate. The house was owned and sold by the children.

Sorry, but you lost me there or something. I understand that you're saying the kids can't use the 121 exclusion, but are you also saying that the "implied" life estate you mentioned in the previous post is not valid after all? Thanks.