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  1. #1
    Join Date
    Mar 2019
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    Default What Tax Form Do You File for a Gift Deed Reservation of Life Estate

    Hello, trying to figure out what form to file for taxes. My mom had passed away in 2007 and my dad passed away February of last year. In 2005 we had created a living trust (their house was part of being in the trust) while both parents were alive, after my mom's passing in 2007, my dad setup/recorded "Gift Deed reservation of life estate" in 2008. This meant after his passing their sole house would be split between my brother and I. We sold the house in September of last year. The house needed lots of work and we didn't really have the time or $$, so we sold it to a flipper for most likely for less than what it was worth in September of 2018. My brother and I split the funds roughly ($64,000) each. My understanding is this:

    With my dad passing last year, the step-up basis would be what the house was worth at the time of his passing (February 2018). So if the house was worth $140,000 plus and we sold it in September of 2018 for $130,000, we shouldn't see any tax due. Is my thinking correct and what form would I need to fill out on taxes to indicate this please? Thanks in advance for any advise or suggestions.

  2. #2
    Join Date
    Oct 2014
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    7,394

    Default Re: What Form to File for Gift Deed Reservation of Life Estate

    Quote Quoting spillins
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    Hello, trying to figure out what form to file for taxes. My mom had passed away in 2007 and my dad passed away February of last year. In 2005 we had created a living trust (their house was part of being in the trust) while both parents were alive, after my mom's passing in 2007, my dad setup/recorded "Gift Deed reservation of life estate" in 2008. This meant after his passing their sole house would be split between my brother and I. We sold the house in September of last year. The house needed lots of work and we didn't really have the time or $$, so we sold it to a flipper for most likely for less than what it was worth in September of 2018. My brother and I split the funds roughly ($64,000) each. My understanding is this:

    With my dad passing last year, the step-up basis would be what the house was worth at the time of his passing (February 2018). So if the house was worth $140,000 plus and we sold it in September of 2018 for $130,000, we shouldn't see any tax due. Is my thinking correct and what form would I need to fill out on taxes to indicate this please? Thanks in advance for any advise or suggestions.
    If their house was in a trust, then your father could not have transferred the house to you with the reservation of a life estate unless he first took the house out of the trust. But I'm guessing that the trust would have also given you and your brother the house after your father died. Either way, the effect of it is that when he died the basis of the home would have become the fair market value of the home on the date of his death. Your gain or loss on home would be the difference between the net sales price (total proceeds of sale less selling expenses) and your basis.

    You'd start with Form 8949 to report your share of the gain/loss. The figures from that then go to Schedule D. Tax prep software like Turbo Tax, H&R Block software, etc., will do all that for you.

  3. #3
    Join Date
    Mar 2019
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    3

    Default Re: What Form to File for Gift Deed Reservation of Life Estate

    Quote Quoting Taxing Matters
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    If their house was in a trust, then your father could not have transferred the house to you with the reservation of a life estate unless he first took the house out of the trust. But I'm guessing that the trust would have also given you and your brother the house after your father died. Either way, the effect of it is that when he died the basis of the home would have become the fair market value of the home on the date of his death. Your gain or loss on home would be the difference between the net sales price (total proceeds of sale less selling expenses) and your basis.

    You'd start with Form 8949 to report your share of the gain/loss. The figures from that then go to Schedule D. Tax prep software like Turbo Tax, H&R Block software, etc., will do all that for you.
    Thanks for clarification, I think that's what happened. Looking at the history at the county assessors website, it seem there were two transactions done on the grant deed in year 2008. I started to fill out form 8949, so on the cost base I would divide the total cost of the house with my brother and only show my actual half price if I'm understanding the form?

    Thanks

  4. #4
    Join Date
    Oct 2006
    Posts
    15,612

    Default Re: What Form to File for Gift Deed Reservation of Life Estate

    Quote Quoting spillins
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    Thanks for clarification, I think that's what happened. Looking at the history at the county assessors website, it seem there were two transactions done on the grant deed in year 2008. I started to fill out form 8949, so on the cost base I would divide the total cost of the house with my brother and only show my actual half price if I'm understanding the form?

    Thanks
    Yes, that is correct.

  5. #5
    Join Date
    Mar 2019
    Posts
    3

    Default Re: What Form to File for Gift Deed Reservation of Life Estate

    Appreciate all the assistance. I know for a fact that we certainly sold the property for a loss, as the price of the house when my dad passed was higher than what we sold it for 6 months later after his passing. I attempted to see if I could somehow calculate the actual based price of the house back to February 2018 (Dad Passing Date) to minus the actual selling price at (September 2018). It seems like I would need to find some appraiser that does historical appraisal to have that figure. How critical is IRS on something like this?

  6. #6
    Join Date
    Oct 2014
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    7,394

    Default Re: What Form to File for Gift Deed Reservation of Life Estate

    Quote Quoting spillins
    View Post
    Appreciate all the assistance. I know for a fact that we certainly sold the property for a loss, as the price of the house when my dad passed was higher than what we sold it for 6 months later after his passing. I attempted to see if I could somehow calculate the actual based price of the house back to February 2018 (Dad Passing Date) to minus the actual selling price at (September 2018). It seems like I would need to find some appraiser that does historical appraisal to have that figure. How critical is IRS on something like this?
    If you were to be audited the examiner may want to see that historical appraisal. That would certainly would be the best support for the value at the time of his death. But if the loss is not that large, a statement from a qualified real estate broker that you obtained now stating what like homes were selling for in September may be enough.

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