Wife became homeowner 1/22, mom's gift, child caregiver exclusion - Medicaid/nursing home purpose. We've lived there 10 yrs. 12/22 sale. Is $500K exclusion OK?

Forum|Forum|3 years ago
November 29, 2022
7 replies
46 views

Since my wife is owner for less than 2 years, I'm afraid $500K exclusion won't apply versus $320 capital gain.

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xmasbaby0

Level 15

Without commenting on the tax aspect just now-----have you consulted an elder care attorney regarding the gifting of the house for "medicaid/nursing home purposes?" Are you aware of the five year clawback (Medicaid Estate Recovery) for assets gifted to people when the elderly/ill person goes on Medicaid? If you have not received legal advice, you need it right now.

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**

dfs49Author

Level 2

Yes, an elder law attorney guided us on the 1/24/22 transfer of the home from my wife’s mom to my wife. Since my wife was her mom’s live-in caregiver for 2 years or longer, Medicaid allowed her mom to make the home ownership transfer to my wife instead of my wife’s mom being required to sell the home to finance her nursing home. My wife & I have resided in this home for the last 10 years. We’ll sell my wife’s home in December, 2022, with a $300K+ gain above my wife’s cost basis. We’ll file jointly/married. The $500K tax exclusion typically requires 2 years of ownership. Can the $500K tax exclusion be applied with only 11 months of ownership? That is, does this Medicaid/nursing home “caretaker child exclusion” waive the typical 2 year ownership requirement?

NCperson

Level 15

@dfs49 - please read this link from the IRS and specifically the part on "health related move"

https://www.irs.gov/publications/p523#en_US_2021_publink10008937

read this statement in particular:

A doctor recommended a change in residence for you because you were experiencing a health problem.
The above is true of your spouse, a co-owner of the home, or anyone else for whom the home was his or her residence.

If you meet the requirements of the entire paragraph (I only snipped part of it), then you would be eligible for 11/24 of the $500,000 or 229,000 would be the exemption - not $500,000

also, the 'cost basis' should be what your mother-in-law paid for it plus improvements since she bought the house. is that how you derived the estimated $300,000 capital gains?