This is my situation.
(1) My parents bought a home in 1998 for $130K.
(2) Between 1998-2004 they spent $170K on improvements.
(3) In 2004 my mom passed away and the house was valued (FMV) at $500K.
(4) In 2005 my father and I entered into a life estate.
(5) from 2005-2015 I spent $100K on additional home improvements.
(6) In 2015 we dissolved the remainder - i.e., I bought out my dads remaining of 10% for $40K.
(7) I have lived in the house since 1998 with my parents.
(8) Since dissolving the remained in 2015 I have spent $80K on new construction plans (architect etc.) but have not built anything off of it yet.
I want to get the full 250K capital gains
exemption (as I have lived in the house with my dad since 1998 and was the owner on the deed per the life estate as of 2005 via the Life Estate - don't know how buying his remainder in 2015 effects actual time of ownership ownership).
(1) How do I determine my cost basis? What is my cost basis?
(2) The law
says I have to live in the house for 2 of the past 5 years - check. It also says that I need to be owner for that time - when did I become the owner - 2005 when we did the Life Estate or 2015 when I bought out his remainder?
(3) If I tear down the house and sell it as vacant land with the architect plans how does everything get effected (cost basis / Cap gains)?
At the end of the day I want to know my costs basis and whether I can get the exemption? (I don't know if it matters but I live in NYC). Also please provide the IRS
codes which would clarify these questions for later reference.