client asks - I sold my house but my children own it

[WITAXLADY]

so I know I need more info - Is it a LE?

did she gift it or they purchase it?

If they do own it and it is sold - the children will have to pay capital gains on either the purchase price or the gifted basis - correct?

Same if LE? or can she use her primary exclusion?

I sure have some doozy questions!

Thank you,

Darlene

[Patrick Michael]

No way to answer these questions without more information.  Basically, it will come down to how the deed was worded (wording depends on the state) and if the home was sold before or after the parent(s) passed away.  

[DANRVAN]

For starters, look at the closing papers and see whose name was on the title and who received the proceeds.

[mcb39]

On 6/8/2022 at 10:07 PM, WITAXLADY said:

so I know I need more info - Is it a LE?

did she gift it or they purchase it?

If they do own it and it is sold - the children will have to pay capital gains on either the purchase price or the gifted basis - correct?

Same if LE? or can she use her primary exclusion?

I sure have some doozy questions!

Thank you,

Darlene

De......I have one exactly like this but don't have to deal with it until next year.  Children have already received 1099 for their share of the sale price.  This was a LE.  NOT a gift.  These are great when they work; not so much when owner outlives the LE.  Mom will get stepped up basis for her share.  Each child will have to build basis from time the house was purchased.  My client is one of the children.  I told him he has a year to look for and remember all of the additions and improvements that his parents made over the years.  My client "gets" it and he is doing his homework.  He will have a CG, but may be fine.  I told him to save the money he got until we know how much tax he is going to own.  Since he is retired, I don't expect it to be all that bad.  Mom is going to live with daughter and daughter has cooked up a scheme to give money back to Mom and then charge her for taking care of her.  NOT!!!!!  Daughter is not my problem, but I told Brother, who is, that she cannot get out from under the 1099S that she already has.  These are such fun. Good luck and happy to still be in touch with you..

[Lee B]

Where the heck do our clients get ideas like this

[WITAXLADY]

Thx Marilyn!

Good to see you Hanging in there yet!!

D

Want some - I have a few more!!

 

One just got his 2017 refund for $7,700 - we persevered!!

another asked for an extension as he was moving in same town so did not file sales tax since Dec!!

[DANRVAN]

11 hours ago, mcb39 said:

not so much when owner outlives the LE.  Mom will get stepped up basis for her share.  

This is not clear to me.

Sounds like there might have been a completed gift if children were on the deed and received proceeds from the sale.

Mom received step up basis but is still alive?   Do you mean from husband's share?

[mcb39]

Yes, because it was her home.  If it is in a Life Estate, childrens' basis is actual original cost of the home.  This is the downside of outliving a Life Estate.  Mom gets her primary home exclusion, but children do not get gift exclusion in a Life Estate situation.  They do not technically own the home until the parent (s) pass.  Remember that this is not an inheritance with stepped up basis for the children.  

Edited June 23, 2022 by mcb39
added a sentence.

[mcb39]

On 6/15/2022 at 4:57 PM, WITAXLADY said:

Thx Marilyn!

Good to see you Hanging in there yet!!

D

Want some - I have a few more!!

 

One just got his 2017 refund for $7,700 - we persevered!!

another asked for an extension as he was moving in same town so did not file sales tax since Dec!!

DUH!!!!!  Thanks for the offer, but I have plenty of my own.  They just keep getting better and more complicated.  I had a client come in last week who just now got his Partnership K1.  How does that work?  Then he tells me that he sold a piece of property in January with quite a profit.  Have to figure out basis because land was originally part of a subdivision that belonged to the Partnership with the delinquent K1.

[Lion EA]

If the partnership was on extension until 15 September, then the K-1 is very timely. Hope the partner/your client was on extension, also.

[DANRVAN]

5 hours ago, mcb39 said:

Yes, because it was her home.  If it is in a Life Estate, childrens' basis is actual original cost of the home.

So it sounds like dad passed away and mom received a stepped up basis (100% if community property state).

Then she created life estate and house was sold while she was still alive.

So children, including your client, received part of proceeds based on their interest, which should have been allocated per life expectancy tables.

Since it was a completed gift, children receive a share of mom's basis.

Mom's basis should be prorated in the same manner as the proceeds.

So children receive a portion of stepped up basis from death of first parent in this case.

[WITAXLADY]

wow - I do not know if I follow that...

Yes, WI so community prop  - 100% SUB

Why life expectancy tables and where would I find those? I have RMD ones..

so 4 children - split in 5? ( with mom) or more complicated based on their ages?

And Basis  - split in 5 as well of the SUB?

Does mom get a primary exclusion on hers?

D WI

[mcb39]

De...I stand by my first reply.  Mom gets a primary exclusion for her share.  Children do NOT get a stepped up basis because they never owned the home until it was sold.  In Wisconsin, this is a sad situation.

[DANRVAN]

12 hours ago, WITAXLADY said:

And Basis  - split in 5 as well of the SUB?

They get a share of mom's basis as I stated above. 

 

2 hours ago, mcb39 said:

Mom gets a primary exclusion for her share.  Children do NOT get a stepped up basis because they never owned the home until it was sold.  In Wisconsin, this is a sad situation.

Mom received a stepped up basis when dad died.

 

On 6/23/2022 at 9:23 AM, mcb39 said:

If it is in a Life Estate, childrens' basis is actual original cost of the home

So children receive a portion of mom's basis which was stepped up on dad's date of death.

Why would you go back to cost basis if mom had 100% step up?

[DANRVAN]

12 hours ago, WITAXLADY said:

Why life expectancy tables

Because children had a remainder interest in the property.  I don't have time to search for the tables right now.

[Sara EA]

IRS Pub 1457.

[WITAXLADY]

Thank you!

[JohnH]

On 6/15/2022 at 1:27 PM, cbslee said:

Where the heck do our clients get ideas like this

Around here we call it “Hillbilly Estate Planning”.  Why pay a lawyer $1,000 to do it right when all you need to do is follow the recommendations of some random stranger on the internet?  (But then, from time-to-time we’ve also seen lawyers some up with some pretty quirky arrangements as well, often involving trusts)