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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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i have a question regarding a life estate. the facts are 1.

Resolved Question:

i have a question regarding a life estate. the facts are:

1. in 2004 mom is 80 years old and transfers her principal residence property ownership to her two sons for $1, retaining the right to use the property for the remainder of her life.
2. mom passes away in 2007.
3. the house remains unused by either son and is sold in 2009.
4. how is the basis determined for purposes of the son's to calculate a gain or loss on the sale of the house?
Submitted: 6 years ago.
Category: Tax
Expert:  Stephen G. replied 6 years ago.

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.


Mom retaining life estate means the property is fully includable in her estate (at fair market value at her date of death [DOD]) for estate tax purposes, just as if she didn't transfer title to the property.


If no estate tax return is necessary due to the size of the estate, that has no effect on anything, you and your brother inherit the property with an income tax basis of the fair market value at her DOD.


That, plus any improvements, real estate taxes not otherwise deducted, costs of maintaining & insuring the property between her DOD and the selling date, becomes the adjusted tax basis at the date of sale.


Note that the property is considered "investment property" with a long-term holding period (no matter how long you actually hold it - which doesn't matter now, as it is long term anyway. Also, the acquisition date for income tax reporting purposes is your mother's DOD.



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