Quit claim deed (4 brothers)

[ILLMAS]

I have a new client that is in the processing of selling his share of a property his mother left him.  There was no estate or inheritance based on what the TP is telling.  Way before his mother passed away, the brothers and with the mother agreed to quit claim deed the property between the four brothers.  My question, if the TP sells his share to another brother, would his basis be zero and his gain 100%?  Your thoughts.

[Jack from Ohio]

His basis would be 1/4 the value of the home at the time of the quit claim deed.

Not a very good financial decision.  They lost out on stepped up basis when Mom passed.

Happens all the time.  "Backyard Probate."  Never works.

[Terry D EA]

I would think his basis would be the result of the total of his mother's basis divided four ways. Wasn't the mother alive at the time of the quitclaim? I'm not sure i FMV at the time the deed transferred is correct.

[Jack from Ohio]

1 minute ago, Terry D said:

I would think his basis would be the result of the total of his mother's basis divided four ways.

At the time of the quit claim deed.

[SaraEA]

Yes, basis is her basis at the time of the gift.  There are some wrinkles to be ironed out though:

Did the quit claim specify Mom could continue to live there (i.e., retain a life estate)?  If not, DID she continue to live there, pay the bills and taxes, just as if she still owned the place?  If so and she died, the brothers get stepped-up basis.  (The full value of the home would be included in her estate, so step-up is allowed.)  If not, you have to calculate the value of her retained life estate.  This is tricky--you have to look up the federal interest rate at the time of the gift and then go to the IRS actuary tables using her age closest to the time of the gift to get a factor value of her life estate.  That percentage is applied to the basis in the house.  What you end up with is the portion of the basis she retained and the portion she gifted.  The gifted portion will then be divided evenly among the brothers, giving each of them their basis.

If you're lucky, a gift tax return was filed and these numbers will be already calculated.  If she had a life estate and died, you get step-up basis.  Either way, your client's basis is not zero.

[ILLMAS]

The mother basis at the time of death was zero, she had owned the property 40+ years, also there was no gift tax or estate filed, she passed away about 6-7 years ago.  Also the quit claim deed was done when the mother became ill, she died not long after that.

[joanmcq]

Yes, people please!  It's QUIT claim, not quick claim. As in 'mom quit having rights to the property'. 

How was mom's basis zero?  She paid something for it 40 years ago.  Or if it was inherited, it has some value 40 years ago.

[ILLMAS]

8 hours ago, joanmcq said:

Yes, people please!  It's QUIT claim, not quick claim. As in 'mom quit having rights to the property'. 

How was mom's basis zero?  She paid something for it 40 years ago.  Or if it was inherited, it has some value 40 years ago.

You are absolutely correct, I cannot believe I said quick claim. 

[Terry D EA]

21 hours ago, joanmcq said:

Yes, people please!  It's QUIT claim, not quick claim. As in 'mom quit having rights to the property'. 

How was mom's basis zero?  She paid something for it 40 years ago.  Or if it was inherited, it has some value 40 years ago.

Damn I can't believe I did it too. Now let me justify by admitting I typed without thinking about what I was typing. Geez. I don't get the zero basis thing either. She had to pay something for it. As I said earlier, their basis is mom's basis as the time of the quit claim/gift. Again to determine this is, follow the post from SaraEA.

[clay]

If they sold the house before she died, the basis is what she paid plus capital improvements.

In this  case she died while still having the house. The quitclaim in this case was finalized effective upon her death and the basis is the appraised value upon death.

[kcjenkins]

On 3/1/2016 at 7:17 PM, ILLMAS said:

The mother basis at the time of death was zero, she had owned the property 40+ years, also there was no gift tax or estate filed, she passed away about 6-7 years ago.  Also the quit claim deed was done when the mother became ill, she died not long after that.

I think you are confusing "net book value" which is "Cost - Accumulated Depreciation" vs "Basis"  which is the Cost paid for it, or the FMV on the date she inherited it, or well, you know the rules if she obtained it by gift