In 2007 we transferred ownership of my mothers home to me with a right to live until her death. She died and I have sold it. what are the capital gains for the sale?

[chrisjdowling]

I believe the right to live makes the FMV at the time of her death.  I was sold only 5 months later at less that the FMV. Please explain.

[Anonymous_]

Were you the life tenant and the remainderman?

If so, you owned the property in fee simple as a result of the doctrine of merger. Consequently, you did not acquire the home at your mother's death but at the time of the transfer. 

Regardless, if you owned the home in severalty (you were the sole owner) since 2007 and used the home as your main residence, you can take advantage of the home sale exclusion.

See https://www.irs.gov/taxtopics/tc701

You need to provide more details about the nature of this transaction.

[TomD8 · Accepted solution]

@chrisjdowling --  Since you sold the home after your mother's death, your cost basis for purposes of calculating the capital gain is the home's FMV at the time of her death.

Your capital gain is your net sale proceeds less that cost basis.

[Anonymous_]

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@TomD8 wrote:

......Since you sold the home after your mother's death, your cost basis for purposes of calculating the capital gain is the home's FMV at the time of her death.

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That would generally be the case if the mother retained the remainder interest and the son did not acquire the remainder interest until the mother's death.

[Irene2805 · Accepted solution]

Yes - use the FMV at the time of your mother's death as he basis of the property.

Some background:

If your mother gave you the house in 2007, without retaining the life estate, when you sold the property you would have to use her basis (when she bought the property).

If you inherited the property from her, you are entitled to use the fair market value at the time of her death as the basis.  This is known as "stepped up" basis.

Your situation is a little different in that she transferred ownership in 2007, but retained a life estate for herself.

Several elder law specialists conclude that the "remainderman" [you] can also take advantage of stepped-up basis--the value of the property at the time of death of your mother, and not the value in 2007. 

So you can calculate the capital gain or loss based on the FMV at the time of your mother's death.

Sources:

• Life Estate Ownership of Real Estate
• Factors To Consider When transferring A Residence For Elder Law And Estate Planning Purposes: A Prim...
• Transfers with a Retained Life Estate

[Anonymous_]

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@Irene2805 wrote:

Your situation is a little different in that she transferred ownership in 2007, but retained a life estate for herself.

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The scenario set forth by @chrisjdowling is different than the statement quoted above (it is backwards).

The mother gave the son a life estate with her life as the measuring life for the term of the estate while, possibly, retaining a remainder interest (which, itself, is the reverse of the typical transaction).

If the mother did not retain a remainder interest then there could be a merger between the life estate and remainder, which would possibly result in the son owning the property in fee simple.

[TomD8]

I believe the OP's situation is that his mother was the life tenant ("...the right to live until her death...") and he was the remainderman.  The cost basis of a life estate property sold after the life tenant's death is its FMV at the time of that death.

[Anonymous_]

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@TomD8 wrote:

I believe the OP's situation is that his mother was the life tenant (...the right to live until her death...") and he was the remainderman.  

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After having read it more closely, it appears that I misunderstood the wording and, of course, if the mother reserved a life estate with the son as the remainderman, he would take a stepped-up basis.