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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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We must a property that is subject to a life estate. The holder

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We must a property that is subject to a life estate. The holder of the life estate is 86 or 87 but can no longer live on his own and cannot manage the property. I have heard that there are tables from the IRS that we can use to value each person's share. The four remainder men get equal shares so the question is what is the life estate holder's percentage of the sale proceeds? And where do we find the guidance for that?

Lev :

Hi and welcome to our site!

Customer:

We must sell a house that is subject to a life estate. The holder of the life estate is 86 or 87 but can no longer live on his own and cannot manage the property. I have heard that there are tables from the IRS that we can use to value each person's share. The four remainder men get equal shares so the question is what is the life estate holder's percentage of the sale proceeds? And where do we find the guidance for that?

Lev :

If the property is sold now - we need to determine two values - the value of the life estate and the value of the remainderman interest. Thus - each owner will report the sale transaction of a percentage of the land he/she owns. The value of the life estate is determined based on the age of the person at the time the property is sold.

Customer:

How do we find that number for the life estate person? Once we have that we can figure out the rest.

Lev :

Yes - there are such tables. I am looking for reference and will provide shortly.

Customer:

Okay, thanks.

Lev :

Please stay with me...

Lev :

Section 7520 of the Internal Revenue Code requires the use actuarial tables for valuing life estates and remainders.
Publication 1457 provides examples.
In your case - the interest rate in June 2013 is 2.0% - see here - http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-7520-Interest-Rates
and Table S (2.0) shows that the factor for a life estate for a 86-year-old person is 0.10598%
and a remainder interest is 0.89402%


See tables here - http://www.irs.gov/Retirement-Plans/Actuarial-Tables
So - assuming the value of the residence is $100,000 - for tax purposes - all remaindermen own $100,000 x 0.89402 = $89,402. And the 86-year-old life estate holder owns $100,000 x 0.10598 = $10,598.

Lev :

for a 87-year-old person - the value of a life estate is 0.09979% and a remainder interest is 0.90021%

Customer:

Thanks.

Lev :

Sorry for typo above - the interest rate in November 2013 is 2.0%. All calculations are correct.

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