Sale of non-resident home

[littletonjoy2]

My sister is selling our mother's home. Our mother is still living. My sister has POA; mother has dementia. My sister will use some of the proceeds to purchase herself a home.  Will my mother have to report the total selling price of the home. Will my sister have to report the amount she plans to use to buy herself a home?

[Opus 17]

Assuming your mother's name is the only name on the title, then:

Your mother is selling her home (legally speaking).  If she owned and lived in the home more than 2 years, she can exclude the first $250,000 of capital gains, and any other capital gains are taxable.  Capital gains is the difference between the selling price and the adjusted cost basis.  The adjusted cost basis is the original purchase price of the home, plus allowable adjustments, plus the costs of permanent improvement (not repairs), minus depreciation that was claimed or could have been claimed if the home was used in business (home office, home daycare, rental).   If your mother bought the home with a spouse who has since died, that can be a significant adjustment to the basis that will lower her capital gains.  See publication 523 for more details, and post more details here if you want a more specific comment. 

https://www.irs.gov/forms-pubs/about-publication-523

Then, legally speaking, your mother is giving a gift of money to her daughter.  If the gift is more than $17,000, it must be reported on a form 709 gift tax return that the mother must file.  However, gift tax is not actually owed unless the mother's total lifetime gifts plus estate are more than $12 million.  But the form 709 is filed so the IRS can keep track of large gifts.  

However,

There are other implications that need to be discussed.  You and your sister need to see a legal firm that specialized in estate planning and elder law.  For example, if your mother needs to go on Medicaid to pay for long term care, her Medicaid eligibility is reduced by any large gifts she has made within the past 5 years.  Your sister could be forced to pay the gift back, or else your mother won't get Medicaid coverage.  (Medicare pays for doctor and hospital visits, but not nursing homes or assisted living. You need Medicaid for nursing home care, and to get Medicaid you must be "poor", and that means that if you give away your money to count as "poor", the government can take those gifts back to pay for care.)

There are other implications to your situation.  Proper estate planning can preserve assets and make sure your mother has the best possible quality of life. 

[xmasbaby0]

You and your sister need immediate advice from an elder law attorney.  Power of attorney gives your sister some rights to handle finances, etc. for your mom; POA does not give your sister carte blanche to take the proceeds of the sale of your mother's house and use it for herself to purchase a house for herself.    If your mom is alive and her house is sold, the sale goes on HER tax return if she gets a 1099S or if the gain from the sale exceeds the amount that can be excluded from capital gains tax.

[Opus 17]

Also, your post title says "non-resident".  If your mother is not living in the home at present, she might not qualify for the full capital gains exclusion.  Review publication 523, but remember when it talks about "you selling your home", that is from the point of view of the mother selling her home, even if the paperwork is being handled by the daughter.   The daughter is not selling the daughter's home, the mother is selling the mother's home (with someone to help with the paperwork). 

[NCperson]

@Opus 17 but if Mom is in a nursing home, that would be 'temporary absense' so would still be considered 'living in the home'., right? 

(and it is possible that 'non-resident home' was from the perspective of the daughter who is not living in the home - it is vague).

[Mike9241 · Accepted solution]

Temporary Absence A person is considered to have lived in the home due to special circumstances such as: Illness, Education, Business, Vacation, or Military service. It must be reasonable to assume that the absent person will return to the home after the temporary absence. there is the following exception: 

IRS PUB 523 states the following:

If you become physically or mentally unable to
care for yourself, and you use the residence as your
principal residence for 12 months in the 5 years preceding
the sale or exchange, any time you spent living in a care
facility (such as a nursing home) counts toward your
2-year residence requirement, so long as the facility has a
license from a state or other political entity to care for people with your condition.

as to the money consult an attorney. Because of your mother's mental condition and that she's in a nursing home, POA not withstanding, there may be some complications upon sale 

[Anonymous_]

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@Mike9241 wrote:

IRS PUB 523 states the following:

If you become physically or mentally unable to care for yourself, and you use the residence as your principal residence for 12 months in the 5 years preceding the sale or exchange, any time you spent living in a care facility (such as a nursing home) counts toward your 2-year residence requirement, so

long as the facility has a license from a state or other political entity to care for people with your condition.

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Quoting Section 1.121-1(c)(2)(ii). 

https://www.law.cornell.edu/cfr/text/26/1.121-1

[Opus 17]

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@NCperson wrote:

@Opus 17 but if Mom is in a nursing home, that would be 'temporary absense' so would still be considered 'living in the home'., right? 

(and it is possible that 'non-resident home' was from the perspective of the daughter who is not living in the home - it is vague).

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To part 1, yes, see the nursing home rule quoted above.

To part 2, legal advice is surely called for.  Both the original poster, and her sibling, need to be viewing this as the mother selling the home.  Due to the mother's disability, the daughter with the POA is "helping with the paperwork" (to oversimplify), but legally speaking, the transaction needs to be viewed from the point of view of the mother selling the home that she owns, and the mother pays the taxes (if any).

There may be better ways to do this, that would avoid taxes and protect the assets for the children and grandchildren, so an elder law specialist is recommended.