Basis doozy

[JJStephens]

This might be simpler than I'm making it. Hope so.

Fifteen year client sold a house in 2015 he never told me owned (deep sigh). It was originally his mother's house but (he says) Medicaid 'made' her do a life estate back in '98 that included transferring the deed to the house to him. She quit-claimed the real estate to my client at that time (no money changed hands); he was obligated to transfer to her 48% of the proceeds of any future sale. He also had a verbal agreement with her to provide each of his two siblings $3000 on demand (he paid off those obligations years ago).

He has no idea what her basis in the property is (he's going to the courthouse on Monday to try to find out what he can). The original house was razed and a new house was built (by the family) 40 years ago--he has no idea at what cost.

I don't think he qualifies for a stepped up basis because technically he didn't inherit the property (she's still alive)--or does an LE qualify as an 'inheritance-in-advance'? If not, does he acquire her basis? Was a 709 required somewhere in the past/present?

Any insight you can offer will be immensely appreciated.

[Lee B]

Given enough info on the house, a long time home builder in the area may be able to give you a reasonable guesstimate

of what it would have cost to build the house in the mid seventies. There will be courthouse records, but they may not be

computerized. Otherwise basis is zero.

[JJStephens]

Zero? Wouldn't there at least be some basis in the land portion of the original purchase?

He's heading to the courthouse on Monday to see what he can find. Computerized records go back only to 1998.

[Lee B]

Do you or he know what was paid for the land originally ?

[Richcpaman]

Did the mother live in the house until the sale?

Did the mother live in the house until she moved to a nursing home?

If so, use the Sec121 exclusion and move on.

Rich

[jklcpa]

JJ, below is a link to a pretty good article that explains the reporting and the problems related to a sale when the property with a life estate is sold while the tenant is still alive.  The reporting is allocated between the tenant and the remainderman based on the IRS life estate table, and the remainderman won't be able to use the sec 121 exclusion on his share.

Safe link to an article written by a lawyer, see item #2 under Disadvantages: http://www.susanmooney.com/?page_id=530

Edited April 9, 2016 by jklcpa

[JJStephens]

Wow. Judy.That was a very helpful article. Thanks! I spent a considerable time googling for answer but that never came up.

[jklcpa]

You're welcome.

Edited April 9, 2016 by jklcpa
YOU'RE, not your!!!!!!

[Max W]

I have run into situations where property was purchased many years ago and the basis is unknown.

FannieMae has price index tables going back to 1975 arranged by state and city.  Working off of these, a reasonable approximation can sometmes be made.

http://www.freddiemac.com/finance/fmhpi/archive.html

 

 

 

[joanmcq]

The records at the courthouse/tax assessors' office might not be computerized, but they probably exist.  Permits should have been pulled when the original house was razed and the new one built.  When the house was sold were there any areas that couldn't be included in the square footage because they weren't done under permit? I see that all the time here.  

This is not YOUR job; tell the client the basis is zero and work from there.  And ask mom unless she's got dementia.

[JJStephens]

Thanks. Mom is out of it but the son (my client) is going to the courthouse on Monday to find out what he can.My comment about computerized records only going back to '98 was meant only to say that's all that's available on line (sometimes my communications are as clear as mud!). He'll have them dig into the paper records to get a clearer picture of their original costs.

Thanks, all, for your input.