House transferred from Mom in 2012 via Quitclaim Deed with Life Tenancy

[lipper]

In 2012, my mother transferred her home to me via Quitclaim Deed while retaining a life tenancy.  At the date of this transfer, my mother's basis in the house was $289,000 and the house was appraised at $280,000.  All the literature says you can use the step-upped basis going forward, but in this case the appraisal at time at the transfer was LOWER than Mom's basis.  Mom no longer lives in the house and I sold it in 2021 for 272,000, so I need to report this sale in 2021.  Can I bring forward her basis of $294,000 and report a loss of $17,000  or am I required to use the $280,000 appraised value and report a loss of $8,000?

[Anonymous_]

Since your mother was still alive at the time of the sale, you have to use the IRS actuarial tables to determine any gain that would be split between you and your mom. There is no stepped up basis in this instance.

See https://www.irs.gov/retirement-plans/actuarial-tables

You cannot recognize any loss since the property was held for personal use.

[ColeenD3]

The house does not belong to you until the time of her death. She is still alive.

What Is a Life Estate?

A life estate refers to property owned by an individual during their lifetime and prevents beneficiaries from selling the property before death.

A life estate allows you to use the stepped-up basis if the previous owner dies. If your mother was still alive at the time of sale, then this was a gift. The basis of a gift is the adjusted basis of the donor at the time of the gift. 

In addition, there is no loss allowed on the sale of a personal use home.

[Anonymous_]

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@ColeenD3 wrote:

The house does not belong to you until the time of her death.

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That is not exactly true. @lipper has a remainder interest in the property.

Any gain on a sale would be allocated to the life tenant and the remainderman based on age and life expectancy. 

[lipper]

thanks for your response.

I agree with your assessment that the house was for personal use based upon the life tenancy and therefore not eligible for claiming any capital loss.  Because my Mother's advance age, the elder law attorney deemed the value of her future life tenancy to be immaterial.  Mom moved to a convalescent home in Feb 2021 and we sold the house in May 2021. 

So, sale gets reported by me showing a loss that is not deductible because it was property used for personal use?

[ColeenD3]

That is correct. Unless you received a 1099-S, you would not have to report the sale.

[lipper]

Thanks.  I did receive a 1099 S.  Do I need to file Form 4797?  Turbotax does not bring me to that form ......at least the way I populated the TT questionnaire.

[Anonymous_ · Accepted solution]

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@lipper wrote:

Do I need to file Form 4797? 

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Not unless it was a rental property.

Otherwise, you would most likely file a Form 8949 and Schedule D.

[lipper]

thanks!!!!