How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lev Your Own Question
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29575
Experience:  Taxes, Immigration, Labor Relations
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

I have a intentionally defective grantor trust that was

Customer Question

I have a intentionally defective grantor trust that was established in 2008. According to the trust document, the Settlors of the trust are 2 daughters. Mother and Father placed their principal residence in this trust and retained a life estate. The residence was purchased many years ago for $55,000 and is now worth about $700,000. Mother passed away in early 2016 and father moved out of house to one of the daughters house in late 2015.
The daughters are talking about selling the house as it is no longer needed.I am trying to determine the taxation on the sale of the house. What would the cost basis of the house be? Original cost?does this asset still qualify for a step up upon the death of Mother in 2016? and does the property qualify fro the sec 121 exclusion?
The trust document indicates that the taxes would be the responsibility of the Settlors
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.

Hi. My name is ***** ***** I will be happy to help you.

The gift tax return should have been filed seven years ago, the gift has nothing to do with the current sale since the siblings are already legal owners of the coop and as such, the siblings sold the property, not the mother in law, assuming there was a proper title transfer.

Both siblings will claim 1/2 of capital gains and use 1/2 of sale price and their basis to figure out their capital gains.

Because they received he coop as a gift, they also received the original owner's basis (purchase price and improvements). To calculate the capital gains you will use the following formula for each sibling

1/2 sale price

- 1/2 closing costs (assuming the split the closing costs)

- (1/2 of mother's purchase price + improvements)

- improvements each sibling paid for after the transfer

= Capital gains.

Customer: replied 1 year ago.
the fact that the parents retained a life estate in the property has no effect on the cost basis?
Expert:  emc011075 replied 1 year ago.

I am sorry, there was mix up with the questions. The respond is meant for a different question.

Expert:  Lev replied 1 year ago.

The key in such determination is "retained a life estate"

Whether we have or not a stepped up basis is based on determination if teh property is INCLUDED into the gross estate of the decedent for estate tax purposes - regardless if any estate tax are due and regardless if the estate tax return is required or if it was actually filed.


1. Under IRC section 1014(b)(9) - any property that is required to be included in the value of a decedent'ss gross estate for estate tax purposes shall receive a stepped-up basis

(b)(9) In the case of decedents dying after December 31, 1953, property acquired from the decedent by reason of death, form of ownership, or other conditions (including property acquired through the exercise or non-exercise of a power of appointment), if by reason thereof the property is required to be included in determining the value of the decedent's gross estate under chapter 11 of subtitle B or under the Internal Revenue Code of 1939. In such case, if the property is acquired before the death of the decedent, the basis shall be the amount determined under subsection (a) reduced by the amount allowed to the taxpayer as deductions in computing taxable income under this subtitle or prior income tax laws for exhaustion, wear and tear, obsolescence, amortization, and depletion on such property before the death of the decedent. Such basis shall be applicable to the property commencing on the death of the decedent.



According to IRC section 2036 - the full value of the property in the retained life estate - is subject of inclusion into decedent's gross estate.

The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death;

(1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. .


Therefore under IRC section 1014(b)(9) you should have a full stepped-up basis for the life estate deed.

I hope that helps. Questions?