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actcjones
Level 2

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

Parents bought house for $13,500 in 66 and we just sold house in July 22 for $118,000.  Made $25K in improvements since 08.  Without life estate afraid can't step up basis to 08.  What about gifting property?  In 08 gift amount was $12K per person for property.  We split proceeds from sale.  House was paid for.  We helped with or paid for improvements over years.  Doesn't seem fair to pay capital gains tax on gross proceeds $107,500.
10 Replies
Mike9241
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

the initial basis to the donees for a gift that is sold at a gain is the donors basis at the date of the gift (that would be the $13.5K plus any improvements from the date they bought it to the date of the gift). To that you can add the cost of improvements made since the gift. from the gross sales price, you can deduct the costs of sale which would include but are not limited to transfer taxes, sales commissions, warranty deed, and certain credits given to the buyers at closing for things like their closing costs. 

 

NCperson
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

@actcjones you are close..... 

 

$113,500 less

1) the $25,000 in improvements you and your brother made less

2) the selling costs (e.g. sales commission) less

3) any improvments your parents made prior to gifting to you.   

 

The remainder is the gain.  

Hal_Al
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

A life estate does not have to be explicitly established in the deed. Your parent probably had an "implied life estate", if they lived there til death.  If so, that would give you the stepped up basis. There is case law on this. Check with a good lawyer

actcjones
Level 2

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

My mistake.  The net would be $104,500.  I would like to think the implied life estate would apply by default since they lived there.  The stepped up basis (at death) would be what we sold it for 90 days after my dad passed which would mean no capital gain.  The other opinions  here seem to subtract any and all improvements from gross profits  and the net would face capital gains.  At least a step up in basis to 2008 (vice 1966 original purchase) would help but that doesn't seem to apply either.  Wish this was more clear in tax code.  To make matters worse it wouldn't surprise me if parents failed to list house as a gift on their 2008 tax returns.  Don't know how that impacts.  

Mike9241
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

state laws vary so consult a tax pro in your state. 

actcjones
Level 2

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

The craziness in using an original basis from the initial purchase in 1966 it two fold.  There have been multiple improvements and improvements to improvements!  The house had central heat and air added over the years and the unit has been replaced multiple times over 56 years as you can imagine.  There have been a few remodeling and additions over the years.  Not bringing the original price and the multiple additions up to now year dollars vs then year dollars (over several points in time)  makes it hard.  Certainly maintaining receipts for all these events is an impossibility too.  My brother and I assisted with or financed several of these upgrades too.  Thanks for your inputs.  I am looking for a good accountant and attorney here.  The implied life estate sure would simplify matters.

NCperson
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

@actcjones - for the improvements, only the last one matters  Let's say the roof was replaced multiple times over 60 years.  While they are all improvments, only the LAST roof replacement can be added to the cost basis.  still a hard exercise, but that makes it a little easier 😊

tagteam
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.


@actcjones wrote:

Wish this was more clear in tax code.


See Treas. Reg. § 20.2036-1(c)(1)(i)

 

An interest or right is treated as having been retained or reserved if at the time of the transfer there was an understanding, express, or implied, that the interest or right would later be conferred.

actcjones
Level 2

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.

I read this section of the code.  While my parents had an implied interest (with us, their children) that the property would confer upon death and that they would live in it until unable or at death, I don't know how that is proven since not documented.  In reality it happened so that may be enough.  Technically we could have sold it at any time after Aug 08 when they deeded it to us (without an official life estate rider) My other concern would be that my dad qualified for Medicaid the last month of his life and it was documented that he had no house since 2008.  He did not have to pay back anything as a result of his remaining estate being valued at under $25,000.  I certainly want to believe that we can step the basis up to the time of his (went into a nursing home on 29 April 22) passing on 31 May 22 and subsequently selling the property on 29 July 22.  The stepped up basis would be the sale price so their would be no capital gains.  It seems like we are playing both sides against the middle.  For IRS purposes it is an implied life estate but for Medicaid purposes he technically did not have a house in the last 5 years that they could come back on to pay back expenses.  I don't want to get sideways with the IRS in a loose interpretation.  Thanks for all your inputs.  I am still looking for a good local tax attorney also.  Keep the responses coming.

tagteam
Level 15

Parents deeded home (1966) in GA to me/brother in 08 but lived there til death in May 22. Not a life estate. No appraisal in 08. What is basis? We made improvements.


@actcjones wrote:

He did not have to pay back anything as a result of his remaining estate being valued at under $25,000. 


Problematic since the value of the property would be includible in his gross estate. Find that local tax attorney.

 

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