brother buys sibling share of home

[Janitor Bob]

In 2015 mom transfers title of home (valued at $90,000) equally to her 3 children.  Mom continues to live in the home until her death in 2017.  Later in 2017, one son buys out the other two siblings for $30,000 each (home still valued at $90,000).  Am I correct in assuming no gain for either sibling that sold their ownership?  Any tax reporting at all?

[Abby Normal]

Did they do a title with a reserved life estate or just stupidly gift the house? If the latter, they're screwed and will pay taxes.

This is why you consult a pro every time the amount of any transaction is over a couple thousand dollars. The small fee you pay can save you thousands of dollars in taxes.

[rfassett]

The two receiving the cash would have gain based on Mother's basis - unless they ponied up money at the time of transfer from Mother.

[Max W]

Could be a huge problem here, because basis is that of the donor.  What was the mother's basis in the house?  My family sold a large, 3 story home , near Boston, in 1951, for $6000.  If the basis were something like that,  basis would be $2000/child.  Since it is unlikely that any records still exist,  the basis could be Zero.

[Janitor Bob]

They did not reserve a life estate.  Mom simply transferred property to the kids ...looks like back in 2006 after dad died (not 2015 as originally thought).  Mom purchased home back in 1978 for $31,000...$1,000 improvement in 1980 so mom's (and siblings basis is $32,000.....$10,667 each....so assuming no step-up basis, gain for each of the two siblings of roughly $19,300.

what about "presumed" estate since mom lived in home until her death for over 10 years after transfer? 

[MDEA]

There is a step up on half when father died. If in a community property state full step up when father died.

[Abby Normal]

1 hour ago, Janitor Bob said:

what about "presumed" estate since mom lived in home until her death

Quite possibly:

Unfortunately, some persons deed away their homes without reserving a life estate. Arguably, the federal estate tax inclusion ends up being lost by such a maneuver, but the literal language of Section 2036 quoted above can salvage the step-up in basis: note that the word “retained” is used. The Internal Revenue Service has successfully argued in the past that a right can be retained without having been reserved, and that the continued occupancy of the home after the transfer of title, without paying fair market rent, is evidence of an implicit agreement, understanding or assumption of the parties of the transaction. (See Estate of Linderme v. Commissioner, 52 T.C. 305 (1969).)

[Janitor Bob]

knowing these clients, though...and their habit of doing things without any expert advice or guidance, I doubt they established any type of estate and simply deeded the home to the three kids.

 

[SaraEA]

This is clearly an "implied" life estate.  Mom continued to live in the home, paid the bills and taxes, just like she always did.  I don't have the legal sources with me right now, but an implied life estate is included in her estate and beneficiaries receive full step-up basis because of that.

[Max W]

22 hours ago, MDEA said:

There is a step up on half when father died. If in a community property state full step up when father died.

There is an exception in California. The property has to be titled as 'Joint Tenancy with Right of Survivorship" (JTWROS), to get  the full step-up  basis.

A revocable living trust will do the same thing, at least in CA.  Don't know about other states.

[WITAXLADY]

2 questions -

so does a life estate qualify as inheritance?

 

What if the parent goes into a nursing home and kids sell home before mom dies? Technically her home LE but I think they are splitting money - early inheritance???

 

[Cathy]

What if the parent goes into a nursing home and kids sell home before mom dies? Technically her home LE but I think they are splitting money - early inheritance???

 

If the kids sell the home before the mother dies, the funds from the sale go to the nursing home for Mom's monthly R&B, medication, etc..  Assuming Medicaid is paying Mom's expenses.

[SaraEA]

If the house is sold before Mom dies, the children's basis is the same as hers was.  The implied life estate generates step-up basis only when she dies while still using the house.  Since that is the case, the children who sold might have a loss if the value increased and they only got $30k.  They can't take the loss because the sale was to a related party.  A stay in a nursing home is considered "temporary" up to a certain amount of time, so if she entered a home for a few months before death  step-up rules still apply.  The only ones who will have to do tax reporting are the sellers IF they received 1099-S forms.