My wife’s parents purchased their home in Connecticut for $18,000 in 1966. They entered a quit claim deed with a reserve for life use in July 2015 to their three children. The house was sold in October 2021 for $340,000 to an unrelated party. After fees and expenses, the sale netted $320,000. The proceeds were divided between the parents ($95K) and the children ($75K each). Each person received a 1099-S filled out by the buyer’s attorney.
The cost basis for the house includes original purchase price, $18K plus approximately $100K in improvements (new Septic, Roof, Walkway, Porch, Deck, Furnace, Water heaters, flooring, windows etc.)
None of the children filed that they received a gift from their parents in 2015.
QUESTIONS:
1. What portion of the proceeds is taxable to the parents and to each of the children?
2. Can the quit claim with life use be considered a gift? If so, how much of the net proceeds can be reduced as a gift?
3. How much of the cost basis can be used to reduce the capital gain for the childrens' 2021 taxes?
[Summarization of Quick Claim Document]
- “Releasors (parents), for the consideration of $1 and other good and valuable consideration, received to Releasors’ full satisfaction from Releasees [3 children], as Tenants in Common, all the right, title, interest, claim and demand whatsoever as the releasors have or ought to have in or to [the property owned by their parents]
- To have and to hold the premises hereby remised, released and quit-claimed with all the appurtenances to the Releasees, their heirs and assigns forever, so that [releasors] shall hereafter have any claim, right or title in or to the premises…
- Releasors herein reserve a life use in and to the subject property.”
