Basis - Purchase Price or FMV at time of death

[mitcheb]

In 1978 my wife's dad was having some demencha, so her sibling had his farm split up and given sections to each sibling.  Her dad was given the right to live on the land and collect any rents or any other income from the land.  Her dad died in 1980.  The wording on the new deeds given to each sibling says the following.  " For and in consideration of the sum of $1 and Love and Affection for the seven siblings, her dad does bargain, give, grant and convey the parcels of land to each sibling. My question is whether our Tax Basis is $1 or the fair market value of the property at her dad's death. 

[DavidD66]

It is not $1.  The sale to your wife and siblings for $1 each is effectively a gift of the property.  If your wife's father retained a life estate in the property, then you wife's basis (as well as her siblings) is the value of the property at the time of his death.   Was a life estate deed prepared and recorded?  A life estate deed needs to clearly state that the property is being conveyed "to life tenant (your wife's father, for life, then to the "remainderman" (your wife and her siblings).  If this wasn't done, then the basis in the property would be your wife's father's basis in the land as it was gifted, and not inherited.  In this case there would be no step-up on basis.  

You should probably consult with an estate planning attorney.   

[mitcheb]

Thanks for your reply.  I do still have a question as I am confused about the life estate deed.  I will type the info from the actual deed to see if you could better help me decide if the transfer was a gift or an inheritance.

This deed, made and entered into this the 17'th day of August, 1978 by and between (my wife's dad), party of the first part and his 7 daughters, parties of the second part.  For and in consideration of the sum of one dollar and love and affection for the parties of the second part, (her dad) does bargain, give, grant and convey the following parcels of land unto each of his seven daughters respectively.  It then describes the property and where the deed is located, etc.  Then it says the following:  Said conveyances are specifically made subject to (her dad's) right to receive annually all of the tobacco rental and his right to reside in his home on tract #3 (one of my wife's sisters lot) all the remainder of his life.

My whole problem concerns the life estate portion of the deed.  Once I have that issue settled, I know how to finish filing my taxes.  Do you have any more comments?  Again, thanks for your help.

[DianeW777]

Based on the statement about your wife's father having receipt of all income from the property and his right to live on the tract 3 for life, it appears the cost basis for tax purposes is the fair market value on the date of death. Ownership is passed to the beneficiaries upon death in a life estate, as a rule. 

An estate attorney is still a good option for certainty.

@mitcheb