Hello, My mother passed away in 2021. Our home was under a life estate. My father and mom, with my 3 siblings were all on the home. We in turn removed my parents names from the home, so all that remained on the property/home was myself an 3 siblings. I wanted the home, so I agreed to pay them off for there portion. Now that is completed, how do I enter this on my tax filing for 2022? I really want to complete this thru TurboTax myself, but l’m not quite sure how this will work? My siblings have all completed their quite claim deeds, so again their names are no longer on title. I was told by an friend that you’ll need to show you sold the home, but then, you bought it back creating a wash. This would then show the IRS the transaction occurred and should be ok. I’m just not sure how that works when entering data on TurboTax and if there is anything I need to file with my county of residence, state or federal? Please help, so I have a direction on how to proceed and prepare. Thanks Jeff
Hi Zoody33/Jeff,
Very sorry about your mother's passing.
I cannot comment if Life Estate receives a step-up basis when one of the owner passes.
A taxpayer does not report purchase of a home. The price paid plus additional fees are considered cost basis of the home acquired to calculate future capital gain/loss upon sale.
Assume there are total four siblings with each inherited 25% of the home. Your 25% allocated cost basis from the Life Estate, plus the money you paid to other three siblings for the remaining 75% is the cost basis of this home. You just keep good records, for example, documenting your 25% allocated cost basis, and payment made to your siblings. Nothing to enter on Turbotax on the purchase, unless you claim property tax deduction or turn it into a rental real estate.
On the flip side, your siblings would need to report the sale of their interest on the inherited home. Each has allocated cost basis from the Life Estate, sale proceed is the money you paid. Depending if the inheritance time to the time of sale is more or less than one year, there should be long term or short term capital gain/loss reported on their 2022 tax returns.
Hope the above helps.
I am sorry for your loss. You should seek professional guidance for this scenario.
See https://taxexperts.naea.org/listing/service/estates-gifts-trusts
I have to presume your father passed before your mother and if that is not the case, none of the following applies.
Since you acquired the property from a decedent (your mother), you and your siblings received the property with a stepped-up basis (stepped up to its fair market value on the date of death of your mother).
Accordingly, you each received a one-quarter share (unless you did not disclose other parties). As a result of buying out your three siblings, you have a split basis; one-quarter of your basis is the fair market value on the date of death of your mother while the remaining three-quarters is whatever you paid your siblings for their shares.
@KochuK wrote:I cannot comment if Life Estate receives a step-up basis when one of the owner passes.
Indeed it does receive a stepped-up basis. At the death of the life tenant, the life estate is terminated and those with a remainder interest take the property in fee (unless there is an unusual restriction in the deed or elsewhere).