Warranty Deed with Exculsion

[MG-28]

My mother (widow) filed a general warranty deed convenant with her three children on it in 2011. The deed had an exclusion that she had the right to reside on the property as long as she was able. She paid taxes on the house and remained in it until her death in August 2022. We sold the house in 2023. How will we determine capital gains? Will it be based on the FMV of the house in 2011 or when my parents bought it in the 1960s?

[DaveF1006]

The basis of an inherited home is generally the Fair Market Value (FMV) of the property at the date of the individual's death or or a date selected by the executor no later than six months after the death.

[MG-28]

Because my mother had the exclusion in the warranty deed that she was to live there until she longer could (and she passed away at home), are we basing any capital gains on when she deeded it over in 2011 or at her passing? Seems to be so many interpretations, I am not sure we inherited it at her passing or it was gifted. Since she remained in the house and we couldn’t sell it until she died, based on the exclusion in the warranty deed,  is this considered an inheritance at passing  or a gift in 2011?

[Carl]

is this considered an inheritance at passing or a gift in 2011?

Depends on to many factors to cover here. Plus, I don't know all the factors. I would suggest you seek legal advice from a local tax attorney or CPA.

My first thought is that you have what is referred to by some as a Ladybird Deed. See https://www.medicaidplanningassistance.org/lady-bird-deeds/ for information on that.

[Anonymous_ · Accepted solution]

---

@MG-28 wrote:

I am not sure we inherited it at her passing or it was gifted....

---

Based upon the facts you stated in your original question, you neither inherited the property nor was it gifted.

Rather, your mother retained a life estate and you and your siblings were granted a remainder interest. As such, you acquired the property (in fee simple absolute) by operation of law as of the date of your mother's passing. 

Your basis in the property is the fair market value on the date of your mother's death.

I am sorry for your loss.