Determine FMV of home in trust with life lease tenant

[Markest1]

My father in law passed away in 2012 .  His home is in a trust in his name. The Trust dictated that his wife (as long as she did not remarry) could live in the house rent free until her death which happened in 2020. What date of death to we use to determine Fair Market Value of the home that was sold in 2021? 2012 or 2020?

[Anonymous_]

You need to read the exact terms of the trust.

If the remainder interest was to pass to the beneficiaries, then the fair market value on the last life tenant to die is used. This presumes that the trust was otherwise a standard, revocable trust (aka revocable living trust).

Local legal counsel and professional tax guidance is recommended for these situations since virtually any advice or conclusions would be dependent upon the type of trust and terms thereof.

[LeonardS]

The basis, Fair Market Value (FMV), of the home, would be its FMV on the date of the grantors' death.  Based on the information in your question you will use the 2012 date to determine the FMV.

[Markest1]

Even though the home was not legally available to us to sell until 2020 we still need to use 2012 as basis for FMV? Can you explain why? Or if able, direct me to irs code that suggests that?

[Mike9241]

state law could also come into play.  in some states, the life tenant has the right to receive any income or profits from the property. in effect, the life tenant has the right to sell the property (barring any legal provision in the trust barring this).  the remainderpeople only become owners when the life tenant dies.  under that scenario, the FMV would be the date of death of the wife.

seek legal advice. 

[Anonymous_]

@Mike9241 is correct. Again, seek local legal counsel.

[Rainman12]

"The life estate/remainder arrangement also raises some tax issues. One of those issues concerns the income tax basis of the property that is the subject of the arrangement. The cost basis of inherited property is almost always the fair market value of the property as of the testator's date of death." - https://lawprofessors.typepad.com/agriculturallaw/2018/08/life-estateremainder-arrangements-and-inco.... 

[Rainman12]

https://ttlc.intuit.com/community/taxes/discussion/cost-basis-of-an-inherited-home-with-a-life-estat...