Primary Home: Sell now or pass to heirs?

[friscomiller]

My in-laws just went into assisted living. Their home is valued at $700K. They can sell now while both are alive and get the $500K exclusion. Or they can pass the home on to my wife and sister-in-law with no tax liability (inheritance). But what happens if they (my wife and sister-in-law) turn around and sell the home immediately? Do they owe taxes on the full $700K sale price? What is the best strategy? Sell now or pass on to heirs?

[Anonymous_]

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@friscomiller wrote:

What is the best strategy?

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What is their current basis in the home?

Is there any possibility they will ever return to the home?

How is the home being used at this point? If they keep the home, what are the future plans (rental?)?

Do they need the proceeds from a sale at this point?

There are a lot of variables here, as you clearly have noticed. 

[Bsch4477]

As you pointed out they get the 500K exclusion if they sell, so they don’t pay tax on the full sale price. In addition, the cost they paid for the home initially plus any capital improvements costs are subtracted from the selling price.  You are correct also that an inherited home would not be taxed to the beneficiaries.  Your parents have to decide if they want to keep the house and be landlords until they die or just get rid of it. Do they need the income from the sale to pay for assisted living, etc. So your the answer depends on more than tax issues. 

[Opus 17]

You need proper legal advice from an elder law firm.

If your parents ever need long term nursing home care, and don't have sufficient funds to pay, or private insurance, Medicaid won't cover their expenses until they are "poor", meaning they can each keep $3000 and a car.  They can be forced to sell any other property, including a house if they are not living in it.  If they have given away their funds or property in order to qualify as "poor" in the past 5 years from needing Medicaid, Medicaid can penalize them and deny coverage, unless the people to whom they gave their property or money give it back and use it to pay for their care.  

There are ways of protecting a home and other assets from Medicaid, and preserving the basis adjustment, but you need legal assistance to set up the correct legal forms for your situation. 

[friscomiller]

They've owned the home for 40 years. Basis is probably $200K or less. They are in their 90's and physically unable to return to the home. The home is currently sitting vacant and contains the majority of their personal possessions. Thay are 100% against renting the home. They do not need the proceeds from selling the home (they have savings and other income). They are strictly concerned with paying the least amount in taxes so they can leave more money to their daughters. I appreciate your help

[Opus 17]

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@friscomiller wrote:

They've owned the home for 40 years. Basis is probably $200K or less. They are in their 90's and physically unable to return to the home. The home is currently sitting vacant and contains the majority of their personal possessions. Thay are 100% against renting the home. They do not need the proceeds from selling the home (they have savings and other income). They are strictly concerned with paying the least amount in taxes so they can leave more money to their daughters. I appreciate your help

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You need speciality advice. Seek a proper legal and financial advisor.  You should find a number of elder law specialty firms that have attorneys and tax pros working together. 

[Anonymous_]

You would most likely benefit from a consultation with an estate planning attorney in your area.

See https://www.avvo.com/estate-planning-lawyer.html