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Richard
Richard, Tax Attorney
Category: Tax
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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What is the basis (and when) of real property used residence

Customer Question

What is the basis (and when) of real property used for personal residence given with the right to life estate.
Facts: Transfer was made of a home consisting of two separate units to all (undivided interest) three of there children. One of the children used the second unit as his principal residence. At the time of the Transfer the parents maintained the right of life estate.
Question when and what basis is used for the sale of the property (January 2016). The transfer was made during the parent's lifetime with the right to a life estate. The parents died subsequent to the sale of the property.
Questions: 1. Is the "conditional" transfer date and basis (conditional as to the Life Estate) with or without step-up of basis, or the DOD value and date re: the passing of the second parent, the unadjusted basis of the property in determination of the unadjusted basis for sale of the property.
Submitted: 10 months ago.
Category: Tax
Expert:  Richard replied 10 months ago.

Good afternoon. My name is ***** ***** I look forward to helping you.

The basis of the property is only stepped up upon death. If the life estate owner had died prior to the sale, then, due to Section 2036(a) of the Internal Revenue Code, the basis would have been adjusted to its fair market value upon the death of the life estate owner as of the date of death. BUT, since the sale occurred first, the basis would be the parents' basis plus the cost of any improvements because the transfer of the remainder interest would simply carry over the parents' basis to the donees.

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