I would very much appreciate your input on this problem:
My mother wants to gift me the apartment that she lives in in Germany. I am a US tax person, she is not. The transaction would have restrictions such as her lifelong usufruct of the property as well as revocation rights under certain conditions.
My concern is what would happen in the future after her passing: Would I be taxed on the gains based on sales price minus her original purchase cost or on the stepped up basis (either the date of gift or the date of her death, which is when I practically fully "receive" the gift). Both stepped-up bases are supposedly much higher than than her purchase cost.
I found the following information online: " If the beneficiary is a U.S. person, Lifetime gifts to children may result in a high U.S. capital gains tax when the donee sells the property as he may not qualify for the stepped-up basis. However, by using German estate planning instruments, e.g. a usufruct (Nießbrauch), a habitation right (Wohnrecht) or a revocation right (Widerrufsrecht), the stepped-up basis may also be available in case of lifetime gifts."
Could anybody please explain the "may" to me: under which circumstances would I or would I not qualify for the stepped-up basis? How would the contract need to be framed in order to qualify?
