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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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taxes, inheritance,caital gains

Customer Question

My mother is getting a "living estate" and putting my name on the deed to her home, giving her life rights. Upon her death, my understanding is that I could then sell the home. She purchased it for around $18,000 and now it is worth $150,000. What are my tax ramifications now and when I sell the home at her death?
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.
It sounds like your Mother is gifting you her home and is retaining a "life estate". That would mean she is giving you ownership but is keeping the right to live in the property until she dies.

The practical effect of this type of strategy is that it gets the house out of the estate for both estate tax purposes as well as Medicaid (assuming more than 36 months pass from the date of gift to entering a nursing home). She will use up some of her lifetime estate tax exemption ($1.5MM) and have to file a gift tax return in the year of the gift.

The downside to all this is that you assume her cost basis of $18,000. Thus when you go to sell the property you will pay capital gains tax on proceeds in excess of $18,000. Had she kept the property in her estate, the cost basis would "step up" to the fair market value as of the date of her death, meaning you pay less capital gains tax.

Of course if the property remains in her name it may be subject to estate tax as well as attachment by Medicaid if she owes them money eventually.

Sit down and talk this over with your mother, the attorney and a qualified CPA.
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: none

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