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Discussion:KIDS BASIS IN PARENT'S HOME

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Discussion Forum Index --> Basic Tax Questions --> KIDS BASIS IN PARENT'S HOME


Discussion Forum Index --> Tax Questions --> KIDS BASIS IN PARENT'S HOME

LWB (talk|edits) said:

20 January 2009
This question has probably been answered before but I'm struggling to find it in the search.

Mother deeded her personal residence to her four kids about five years ago. She lived in the home until 2008 when she was moved to an Assisted Living. Mom is still alive Kids sold the home when Mom moved out. What is the kids basis, carryover basis from when Mom purchased the home? or FMV when deeded to kids?

LWB

CATAXES (talk|edits) said:

20 January 2009
Mom still alive. This is a gift. Carryover basis.

Solomon (talk|edits) said:

20 January 2009
Any chance of a deemed life estate?

Kevinh5 (talk|edits) said:

20 January 2009
if mom is still alive, a deemed life estate only changes the amounts of the sale reported on each party's return. The basis remains the same (mother's adjusted basis).
Ahhhh....I get it, Solomon, you want to qualify for §121!!!!  Good thinking!

Dennis (talk|edits) said:

20 January 2009
When a parent continues to live in the house after transfer there is an implied life estate (from a tax standpoint) Treatment is dependent on state law. In English common law states the sale proceeds would be divided between the life tenant and the remaindermen (§7520 tables - age of parent at sale), with the life tenant's share qualifying for the §121 exclusion. Basis for gain would be parent's.

Some sort of step up would have occurred when father passed.

LWB (talk|edits) said:

20 January 2009
Since they sold home when Mom moved, it's possible for the deed transfer to be a deemed life estate for the time Mom lived there, correct? Thanks, this may be just what I needed! The house wasn't deeded to the kids until long after the fater passed.

LWB (talk|edits) said:

20 January 2009
Still confused though. Dennis, you state the sale proceeds are divided between the life tenant (Mom) and the remaindermen (Kids ?) If so, what is the basis for the kids share? Or does Mom report the whole sale, take the Section 121 exclusion and "gift" the proceeds to the kids?

Solomon (talk|edits) said:

20 January 2009
§7520 and Pub. 1457.

Riley2 (talk|edits) said:

20 January 2009
LWB, this is a matter of state law. Not sure that your state even recognizes an implied life estate.

Also, in this case, the mother's property rights apparently terminated when she moved into assisted living.

Blrgcpa (talk|edits) said:

20 January 2009
If the house was jointly owned at the time the father died, the mother's basis would be increased. Since she is still alive, there is no step up in basis.

LWB (talk|edits) said:

20 January 2009
State is Colorado, anyone have more insight? I think (but need to check) that the house was in Mom's name solely when the father died because they had titled it solely to Mom so Dad could get Medicaid nursing home care.

Kevinh5 (talk|edits) said:

20 January 2009
the basis question has already been answered: mother's basis.

The only thing that needs to be determined is whether mother gets to claim any of the sale (and §121 exclusion) on her return, or whether the children must show the entire sale on their returns.

Out of curiousity, who had to sign the deed at the real estate closing? That is an indication of who the attorney thinks owned and sold the home.

LWB (talk|edits) said:

21 January 2009
Kevin, thank you. The son who is taking care of Mom's finances and is one of the kids on the title signed his name at closing.

Dennis (talk|edits) said:

21 January 2009
Who signed the transfer does not necessarily mean anything. Moving out does not necessarily terminate a retained life interest. Anything is possible in a fact pattern that begins with transfers to preserve assets. Ask the attorney. You will never understand what was done if you don't understand why they did it.

Ddoshan (talk|edits) said:

21 January 2009
It is very common for elderly folks to deed over a home to their kids precisely because they do not want the home lost should they go into a nursing home or such. In Mn. at least it is normally a life estate situation as Dennis indicated in his first post. Mom would retain an interest in the home. The basis would be Mom' basis in the home. With mom and the kids then sharing an iterest which changes each year depending on length of time that has gone by and age of mom - using the remainderman tables referenced by Dennis.

Mom can use the 121 exclusion for her interest at sale of home. The kids may not. Unless of course one of the kids also lived there and met the tests.

If the situation was a life estate type deal, technically a gift tax return should have been filed at the time of the deed change. It is an uncompleted gift as mom retains the right to live in the home.

Dennis (talk|edits) said:

21 January 2009
Silly to guess. It would have been possible for father to transfer to mother both protecting assets and preserving either 1/2 step-up or even full step-up (Gallenstein). Doesn't mean it was done that way. Also the Medicaid eligibility rules changed between father's transfer and mother's. Five year look back expires and off to the nursing home she goes? First question that should have been asked would have concerned mother and Medicaid. Eligibility for §121 also means assets...♫

NMexEA (talk|edits) said:

21 January 2009
GAAAAHH!

You folks finally managed to convince me that there is such a thing as an implied life estate but NOW, I am getting all confused again!

I understand Dennis' and Ddoshan's division of the property into the life estate and the remainder. That makes legal sense in the common law world. But then Ddoshan says that, so long as Mom continues to live in the home, the gift is uncompleted!

How can this be? Arten't there actually TWO gifts here; the original, completed gift of the remainder interest then, when Mom moves out, then and only then, she gifts her retained interst and THAT gift is complete? Where's the incompleted gift?

Riley2 (talk|edits) said:

21 January 2009
The gift was complete.

Here is the gift-tax definition of an incomplete gift. Reg §25.2511-2(b).

As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case.

DgR (talk|edits) said:

21 January 2009
mom's basis would/could be stepped up by 100% of the fmv when husband died if joint tenancy created pre-'77 in cases where pty was pd for by deceased. I use to have, but lost a fairly extensive file on this mostly from RIA research. not in current Q'finders, but pulled the '98 tax yr Q'finder, page 16-6 refers to 4th & 6th circuits allowing this. I can't remember if i ever found the answer to if husband put the $ down but in the future wife helped pay the mtge which also pd for the pty, if this would change 100% step-up. just noticed Q'finder refers to Gallenstein v. us which Dennis mentions above.

NMexEA (talk|edits) said:

21 January 2009
Okay. Then since Mom had no power over the disposition of the home once she deeded it to the kids, the gift WAS complete at that point.

Right? RIGHT??

Kevinh5 (talk|edits) said:

21 January 2009
[search results]

Riley2 (talk|edits) said:

22 January 2009
The original post simply asked if basis is fmv at the time of gift or is it Mom's adjusted basis. I don't think there is any argument that basis is Mom's adjusted basis. The real question is who pays the tax on the gain. This is really a matter of Colorado state law. If Colorado state law will enforce an unwritten life estate agreement, then it seems clear to me that the gain will be allocated between Mother and children, as Dennis suggests. In other words, if Mom has no property rights after the children dispose of their interests, the children will end up being taxed on the entire gain.

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