Sold our mothers home after she passed away, she had the right to live there until her death

[glennawebster]

The property was in her childrens names since the early 80's.  She passed away in 2016 and we sold the home in 2017 (home on market for almost a year before sold).  I know we will get a 1099-S at year end.  My question is whether it will qualify for the home exclusion on the gain?  This home was not a primary residence for any of her children.  If it doesn't qualify for the exclusion, how do I come up with a basis.  I have no records for when my parents built the house.

Thank you.

[TomD8 · Accepted solution]

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:  http://real-estate-law.freeadvice.com/real-estate-law/real-estate-law/life-estate.htm

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:  https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-an...

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.

[bbjana2000]

same situation, except property gifted to me by my mom in 1996 is international and mom was never US based, had no strings to US. I am Perm.Resident since 2002. (gifted 1996 w life estate clause, mom passed 2016, i sold 2017. mom used it as her primary  home). Does the international bits make difference, or does it qualify for stepped up basis? Thank you

[TomD8]

If a life estate was created at the time the property was gifted to you, and since you sold it after your mother's death, it qualifies for the stepped-up basis.

[bbjana2000]

many thanks !

[bbjana2000]

Many thanks!

[JacksonWackson]

Our situation is similar. Our mom put my sister's and my name on tital of her home but she had life estate of home. She passed 4 years ago and no one has lived in her home. We are selling it now, closing in one week. What's the best way to divide proceeds? We will be dividing with total of 4 siblings. Two are not on deed. Will there be capital gains? Is this considered income? House was sold for 22,000.

[JacksonWackson]

Our situation is similar. Our mom put my sister's and my name on title of her home but she had life estate of home. She passed 4 years ago and no one has lived in her home. We are selling it now, closing in one week. What's the best way to divide proceeds? We will be dividing with total of 4 siblings. Two are not on deed. Will there be capital gains? Is this considered income? House was sold for 22,000. But after realtor and closing costs we're looking at about 19,000 to divide 4 ways. If my sister and I have checks to us only and then "gift" our siblings their shares, will our taxes be higher? Should we hold some back to cover taxes?