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Lev, I have a question about the sale of a property that had…

Hi Lev, I have...

Hi Lev, I have a question about the sale of a property that had both a life estate interest and a remainder interest do you know anything about that?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

My parents had a life estate in property and I had the remainder they sold it september of this year we are trying to determine how we would pay taxes on that

Accountant's Assistant: When we are ready I'll take you to the appropriate web page.

I'm sorry, when who is ready?

Accountant's Assistant: Is there anything else the Accountant should be aware of?

My mother is 65 and my father is 76

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Answered in 3 minutes by:
12/13/2017
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,237
Experience: Taxes, Immigration, Labor Relations
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Both a life tenant and the owner of the remainder interest will be considered as co-owners.

That means - each co-owner will report the sale of his/her ownership interest.

The main issue will be with allocation and the percentage of the ownership interest of life tenants will be based on their ages at teh time the property was sold.

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Customer reply replied 2 months ago
my question was the allocation. I know that each of us would report an interest. I needed assistance with what the percentages should be.

Publication 1457 provides examples for valuing annuities, life estates, and remainders generally.

See here section-7520-interest-rates for September 2017 - 2.4%

https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates

So we will need to use

2-1 Table R(2) 0.2% to 4.0%

from

https://www.irs.gov/retirement-plans/actuarial-tables

For ages 76 and 65 - see row 3720 column "N" - the value is .63984 - that is your reminder interest 63,984% in the property.

Let me know if that addressed your concern.

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Customer reply replied 2 months ago
My escrow agent is asking for the percentages to list on the 1099. Would your suggestion be to put my interest at 63.98% and my parents as the remainder on the 1099 to keep it simple come tax time?

Correct - the life estate value (which is based on their age at the time the property was sold) would be 100% - 63,984% = 36,016%

So you will divide the sale price in this proportion.

Calculations and steps are above - keep for your reference.

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 31,237
Experience: Taxes, Immigration, Labor Relations
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