Parent donated home 10 yrs ago, then we sold it.. ...
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msnormand
Returning Member

Parent donated home 10 yrs ago, then we sold it.. help please

Using round numbers, 12 years ago single parent donated small home equally to 4 grown children. Parent then continued to occupy home via legal Usufruct agreement, then parent passed away in 2018.  Home was then sold in 2020 for $70k due to market conditions, less than current private firm appraised value of $100k.  At 2020 year end, real estate attorney sent each of the children a 1099-S for $17,500.  Cannot quite find the answer through research.  What if any portion is taxable to the children? Details appreciated using Turbo Tax (version?). 

3 Replies
ColeenD3
Employee Tax Expert

Parent donated home 10 yrs ago, then we sold it.. help please

Please see this answer from TomD8.

 

The answer to your question depends on whether or not a "life estate" was legally created at the time the property was gifted in the 1980's.  (Your description sounds like it may have been.)  This web reference explains a life estate:  Life Estate

 

If a life estate was created, and you (& your siblings) are the remainderman, since you sold it after her passing your cost basis when you sell it is its Fair Market Value ("FMV") at the time of your Mom's death.  This is called a "stepped-up" basis.

But if no life estate was created and the property was simply gifted by your Mom to her children, your cost basis (if you sold it at a gain) would be your Mom's original cost, plus any capital improvements made to the property over the years.  You can find more details (on sale of gifted property) here:  Gifted Property

 

One of the requirements for the capital gains exclusion is that the seller must have lived in the home as their primary residence for at least 2 of the 5 years leading up to the date of sale, so it appears the exclusion would not apply in your case.

Consult an attorney if you're not sure about any aspects of the situation.

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msnormand
Returning Member

Parent donated home 10 yrs ago, then we sold it.. help please

Thank you very much for your long reply. One correction in your reply... the home was gifted in 2008, not the early 1980's per your reply. It was done through an attorney and filed properly with state and local county authorities accordingly.  Not sure if that constitutes a "life estate"? 

 

Any thoughts further?  Hoping to use the stepped up basis. 

Thanks again!

 

 

KrisD15
Expert Alumni

Parent donated home 10 yrs ago, then we sold it.. help please

This is a question we cannot answer, you need to know how the house was deeded. 

Real Estate is governed by the state. 

Depending on HOW the deed was transferred in 2008 will determine if your basis is the value of the home in 2008, or the value of the home on the date of the parent's passing. 

 

If the value on the date of sale in 2020 is less than the value of both, 2008 and 2018, it won't matter, the sale won't be taxable income. 

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