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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1493
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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Two elderly sisters, who are PA residents, form a living

Customer Question

Two elderly sisters, who are PA residents, form a living trust in 2002 & grant the remainder interest in their condominium (by deed) to their niece & nephew, retaining a joint life estate for themselves. They purchased the condo for 35,000 in 1985 & the
fmv at the date of transfer to the niece & nephew is 58,000. One of the sisters passes away in 2009. At that time, a PA Inheritance Tax Return (Form REV-1500) is filed. The fmv of the condo as of the date of death is 145,000. The "life estate value" of 11,633
is recorded as an asset on Schedule F & the "value of the remainder interest" of 60,867 (72,500 - 11,633) is reported on Schedule G. The niece & nephew each have a 30,434 "value of remainder interest" (72,500 - 11,633 /2)recorded on Schedule J. The other sister
falls in June, 2015 & has to be moved to assisted living. The niece & nephew sell the condo on July, 1 2015 for 137,000. Do the niece & nephew have a capital gain for Federal & PA purposes & if so, would their basis be 30,434 each?
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
I sent this question over 24 hours ago. Can a tax specialist or tax attorney please respond to it?
Customer: replied 1 year ago.
Just checking in to see if any of the tax specialists and/or ta x attorneys have an answer to my question, which I asked yesterday at 3:30pm?
Expert:  Arthur Rubin replied 1 year ago.
They have a capital gain, but I don't think that's the amount. It would be (almost) correct if the sisters had retained _separate_ life interests.
It seems to me that the total basis in the hands of the niece and nephew would be
(1) The 2002 value of the remainder interest (which may or may not be $58,000), plus
(2) The CORRECT amount on the 2009 schedules G / J, which would be the difference between the 2009 value of the joint life estate and the value of the surviving sister's life estate.
Customer: replied 1 year ago.
Please note after sending my question, I uncovered an Attachment to Realty Transfer Tax Statement of Value dated 10/5/2009 indicating that the one sister passed on 06/25/2009 & the surviving sister is surrendering her life estate interest of .17017 to the Remainderman (the niece & nephew), and therefore the remainder interest of .82983 is exempt from realty transfer tax. The fmv used was 60,025 & 49,811 (.82983), was therefore the exempt remainder interest & the non-exempt life estate interest was the difference of 10,214. Also, in your previous response, you indicated that one component of the niece & nephew's basis would be the 2002 value of the remainder interest of 58,000. Would this now be replaced by the 60,025? You also indicated that the CORRECT amount on the 2009 Schedules G/J should be added to the 58,000. Please note the Schedule G only shows two items - the first is the value of the remainder interest of 60,867 (72,500 - 11,633 value of life estate per Schedule K of REV-1500) & the second is a certificate of deposit with a value of 23,791 of which the surviving sister is the beneficiary. Lastly, please note in addition to the niece & nephew, who each receive 30,434 per Schedule J (per my original question), the surviving sister is the 3rd beneficiary on Schedule J & she receives 100% of the residue, or 144,201. That said, could you please advise what the niece & nephew's total basis would be upon the sale of the property on July 1,2015?