My wife's parents hold a life estate in the state of Wisconsin for two parcels of land. There is a 20 acre lot that has the house and another 40 acre lot that is just trees across the road. We would look on the property as being cumulatively one big homestead. (It is all on the same bank loan) They are on Social Security and this is their only form of income.
My wife and I are the title holders / recipients of the life estate.
The 40 acre property was just sold for $65,000 and we found that the original decreed tax basis for the entire 40 acres was $437.50. Not per acre, total for all of it.
The deeds say that the 20 acres is homestead and the 40 acres is not.
Since they live there and it is their primary home / is all on the same bank loan, does the 40 acre lot become part of their primary residence?
If so, do they get to use some of the $240,000 Capital Gains exemption?
If not, do they have to claim Capital Gains on it? At what rate? They haven't had to file taxes in years.
Does any of this issue come to my wife and I as the recipients of the life estate or is it all on her parents at this time?
