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Lane, JD, CFP, MBA, CRPS
Category: Tax
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Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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How to calculate basis of life estate . Both parents passed

Customer Question

How to calculate basis of life estate . Both parents passed away and house is now sold.
Submitted: 3 years ago.
Category: Tax
Expert:  Lane replied 3 years ago.

The Government puts out tables (factors applied to the Fair Market Value) for this purpose. (taxation, capital gains, estate value, etc)

Here's one from the state of Washington that they use, I believe, for medicaid qualification purposes, but is more than likely the same table.

If you would, while I'm looking up the federal tables do TWO things for me:

1. take a look at this and see if it correlates with either of the responses you've gotten from the CPAs

http://www.dshs.wa.gov/manuals/eaz/sections/longtermcare/LTCOappendix2.shtml

2. tell your objective..(basis for calculating the gain on sale?)

Thanks

be right back

Customer: replied 3 years ago.

I cannot open the site that you sent.

House was sold after parents passed away. Need to calculate capital gain based on basis

Expert:  Lane replied 3 years ago.

Sorry, you might try copying the link and pasting it into your browser.

But first, I have been doing some research and need to ask one more question to give you an accurate answer:

Was this life estate created as a result of an inter vivos trust arrangement often referred to as an AB type trust?

(This is where both spouses transfer most, if not all, of their property to a living trust. Then at the death of one spouse, all property placed in the living trust is split into one or the other of the trusts, A or B.

OR

was this where no AB type trust arrangement existed and they transferred the property to your you then lived in the house for the remainder of their lives?

Let me know. We're almost there.

Lane

Customer: replied 3 years ago.

No AB trust arrangement

Expert:  Lane replied 3 years ago.

If this was done as a life estate deed, (sometimes called a deed with reserved life estate), done many times to protect the asset from medicaid availability, then the step-up in basis is retained, meaning the basis is the fair market value on date of death, as long as the home was sold after the life estate owner died.

If there was language in the deed that the house could not be sold without the assent of both the life AND remainder interest holders you probably have a deed with reserved life estate.

Another clue would be that the life estate owner would have been advised
that if the home WERE sold during the life of the life estate owner it would not qualify for the exclusion of capital gain on sale.

On other clue would be that you would have been told that the property WOULD be included in the life estate owner's estate.

IF this is life estate deed, and you are the remainder interest owner, you do get a step-up in basis to the date of death fair market value.

If not, please tell me how the property was conveyed.

Lane

Expert:  Lane replied 3 years ago.
Hi,

I'm just following up with you to see how everything is going. Did my answer help?

Let me know,
Lane

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