Get your taxes done using TurboTax

It's a bit complicated so I will try to assist, however an estate tax attorney should be consulted.

A life estate is an interest in property that is created when a person making a will or trust gives another person the use of property only during the other person's lifetime. The second party is the remainderman, or person with a remainder interest who is entitled to full ownership upon the death of the life tenant.

Mother has actual cost basis, what she and your father actually paid for the house, using her share (29.526%),  and then the stepped up basis for her share at the time of death of her husband (your father).

You and your brother should use the same as your mother's cost basis because you technically have not yet inherited it since your mother is still alive.  This follows the gift tax rules for tax purposes.

The stepped up basis may have been allowed if your mother has passed away before the sale.  This is where an estate tax attorney may need to be consulted.

You were actually given a future ownership and once the family members determine they wish to sell the property, each member will be compensated based on the ownership interests. You noted each person's share in your original question.

Question 3: Sales expenses are added to the cost basis of the property. For you and your brother you will indicate this is a sale of a second home in TurboTax. 

• Seller contribution (split based on your prorated share):
  •  Prorations of property taxes, (Itemized deduction only for each of you)
  • Sales Expenses:  Commissions, Title Charges, Government Recording and Transfer Charges 

Form 8949 Instructions:

• Box F: Yes you can check this box

Question 1: Do I enter in column (d) the Gross Proceeds as reported on 1099-S or my 35.237% of that value?

• Each will record their prorated portion of the gross proceeds

Question 2: In column (e) do I enter the total base from the appraisal or my 35.237% of interest in property?

• Your share of the fair market value (FMV).  Appraisal is not always FMV so be sure it is not an inflated number.
  • IRS definition of FMV: According to the IRS, it's the price that property would sell for on the open market. This is the price that would be agreed upon between a willing buyer and a willing seller.

Question 3: Answered above.

Question 4: Can column (h) be a loss and be subtracted for other income on 1040? 

• Yes, for you and your brother if you never used it as your main home. 
• No, for your mother because it was her personal residence.

Question 5: Should column (f) have Codes E & N?  

• If the Form 1099-S is only in one name then you should use code N and E because no basis is being reported.