Results 1 to 3 of 3
  1. #1
    Join Date
    Jan 2010
    Posts
    2

    Default Sale of Life Estate Property

    In Sept 2000 a widowed mother sold her home to her 3 children for no cost. She executed a warranty deed and retained life estate. She lived there until Jan 2009 when she was admitted to a nursing home with Alzheimers and a stroke. In Jul 2009 the three children sold the home, and in Oct 2009, still in the nursing home, the mother died. Q: how do the three children report the sale proceeds (1/3 each) to IRS?

  2. #2
    Join Date
    Oct 2006
    Posts
    16,391

    Default Re: Sale of Life Estate Property - Florida

    Quote Quoting rrwriter
    View Post
    In Sept 2000 a widowed mother sold her home to her 3 children for no cost. She executed a warranty deed and retained life estate. She lived there until Jan 2009 when she was admitted to a nursing home with Alzheimers and a stroke. In Jul 2009 the three children sold the home, and in Oct 2009, still in the nursing home, the mother died. Q: how do the three children report the sale proceeds (1/3 each) to IRS?
    I am going to ignore the implications of the life estate since you sold the home only 3 months prior to her passing away.

    Unfortunately, your basis in the home is your mother's basis, because she gifted it to you. Selling it to you for zero cost is gifting it to you.

    Her basis is what she paid for the home originally, plus the cost of improvements. If she and her husband originally owned the home together, then she got a stepped up basis on 1/2 of the home, and that stepped up basis is also your basis.

    So, lets say that she lived in the home for 40 years, and the original cost was 25,000 and over the years another 25,000 in improvements were done.

    When her husband died the property was worth 200,000. She got a stepped up basis in her husband's 1/2 of the property to fair market value, or 100,000.
    Her half of the original basis was 25,000. That makes her total basis 125,000.

    Lets say that you sold the home for 200,000 since the market is currently in such a mess and any gains since her husband died were lost due to the market. The total gain on the property is 75,000. You would each report 1/3 of the basis, and 1/3 of the selling price, and you would each end up with a long term capital gain of 25,000.

    This would all be reported on Schedule D.

  3. #3
    Join Date
    Jan 2010
    Posts
    2

    Default Re: Sale of Life Estate Property - Florida

    Thanks. She had the home built in 1989 after widowhood; we think cost was about $30K but have not searched diligently for records. Lived there alone till 2009. Net sale price was 117+K.

    1. Sponsored Links
       

Similar Threads

  1. Life Estates: County Tax Sale of a Life Estate Interest in the Property
    By HWCJR in forum Real Estate Ownership and Title
    Replies: 1
    Last Post: 03-06-2011, 08:16 PM
  2. Tax Sale and a Life Estate
    By ktm rider in forum Tax Law
    Replies: 5
    Last Post: 07-20-2010, 02:12 PM
  3. Federal Taxes: Capital Gains Taxes on Sale of Property Held in a Life Estate
    By tauruz in forum Tax Law
    Replies: 1
    Last Post: 03-15-2010, 04:54 PM
  4. Life Estate and Sale of Home
    By helpawidow in forum Estate Planning, Administration and Probate
    Replies: 2
    Last Post: 07-08-2009, 05:44 PM
  5. Life Estates: Life Estate Property Sale
    By doodlewah in forum Real Estate Ownership and Title
    Replies: 1
    Last Post: 07-22-2007, 12:21 PM
 
 
Sponsored Links

Legal Help, Information and Resources