Ugh, quit claim house

[GLJEANNE]

NOT today, probably not even tomorrow (I think I'm collapsing for a long weekend) but next week I have to deal with a client whose mom quit claimed the house to her kids, who sold it.  They think it's not taxable.  "But it was an inheritance!"  Um, no, it was a quit claim!  I suspect the basis is going to be really low, unless there were a lot of improvements over the years.  So.much.fun. 
 

[Medlin Software, Dennis]

Ugh, but these situations provide for lifetime income opportunities...

[Lee B]

Yeah, it reminds me of a client several weeks ago, who thought they were getting a tax break that disappeared over 20 years ago.

Or my clients who paid an attorney to set up a trust, then they never followed the instructions to fund the trust.

 

[DANRVAN]

17 hours ago, GLJEANNE said:

mom quit claimed the house to her kids, who sold it.  They think it's not taxable.  "But it was an inheritance!"

Possible life estate due to beneficial interest?

Did mom live in house "rent free" until death?  Did she pay property taxes, pay for upkeep?

Those are factors tax court looks at in determining if the residence is included in the decedent's estate.  Living rent free is a big one.

[Lion EA]

But there's no estate while mom's alive. The kids get it at mom's adjusted basis.

[DANRVAN]

37 minutes ago, Lion EA said:

The kids get it at mom's adjusted basis.

If mom held a beneficial interest then there is a incomplete gift per case law.  If that is the case then house is considered part of mom's estate and step up basis kicks in.

19 hours ago, GLJEANNE said:

But it was an inheritance!"  Um, no, it was a quit claim

I read into this that house was sold after mom's death, was that the case?

[Lee B]

21 minutes ago, DANRVAN said:

 

I read into this that house was sold after mom's death, was that the case?

Actually, I read the opposite , but we really don't know do we ?

We're all tired, we leave out words, details etc.

Sometimes the next morning when I reread one of my posts, I look around my one person office wondering who wrote that ???

[Lion EA]

1 hour ago, DANRVAN said:

If mom held a beneficial interest then there is a incomplete gift per case law.  If that is the case then house is considered part of mom's estate and step up basis kicks in.

I read into this that house was sold after mom's death, was that the case?

You're saying maybe mom quit claimed a percentage to her kids and kept a percentage for herself and then mom and kids all together sold the house? But when mom dies, neither she nor the kids will own the house. Didn't they sell it as soon as it was quit-claimed to them. I guess I don't understand the timeline. And, Jeanne's taking a long weekend.

[DANRVAN]

3 hours ago, DANRVAN said:

Did mom live in house "rent free" until death?

That was my question.

30 minutes ago, Lion EA said:

maybe mom quit claimed a percentage to her kids and kept a percentage for herself

No, I was not implying that she kept any legal ownership.  The quitclaim would transfer legal ownership, but it is possible she retained a beneficial interest until death.  In that case the house would pass through her estate.

[Lion EA]

On 4/15/2021 at 4:45 PM, GLJEANNE said:

mom quit claimed the house to her kids, who sold it.

So, the house passed through the estate to the kids who sold it? Then, I agree, there's a step up/down in basis on that timeline.

[joanmcq]

Well we don't know because I read it as the house was sold while mom was alive.  So we definitely need clarification!

[GLJEANNE]

Sorry, just now getting back to the board, crazy week.  Got the whole thing figured.  No, Mom's alive and well, but after a lengthy phone convo, there were a lot more factors, and I think we're finally on the same page.