Sale of second home

[Margaret CPA in OH]

Just checking here.  Client's mother gifted condo to her with life estate.  Mother passed early 2024, condo sold soon after. Basis is mother's basis plus improvements (new HVAC system).  Sales price less basis less selling expenses equals long term gain.  Right track?

[Bart]

1 hour ago, Margaret CPA in OH said:

Just checking here.  Client's mother gifted condo to her with life estate.  Mother passed early 2024, condo sold soon after. Basis is mother's basis plus improvements (new HVAC system).  Sales price less basis less selling expenses equals long term gain.  Right track?

+

Basis is stepped up basis at DOD not mom basis.

[DANRVAN]

1 hour ago, Margaret CPA in OH said:

Client's mother gifted condo to her with life estate

If it mom truly retained a life estate it would be included in her gross estate and receive stepped up basis.

 

[Margaret CPA in OH]

Thanks for the quick replies.  I believe it was implied, not stated, but mother did live there until death without rent so all good.  I just need to get value at dod which I suspect is pretty close to sale date.  Still reported on Sch. D?  Sale of second home and long term if gain, but likely a small loss with expenses of sale so no offset.  There was no 1099S.

[DANRVAN]

13 hours ago, Margaret CPA in OH said:

  Client's mother gifted condo to her with life estate.

 

2 hours ago, Margaret CPA in OH said:

I believe it was implied, not stated, but mother did live there until death without rent so all good.

My first thought was a second / vacation home with an actual transfer of deed with a written life estate; vs an implied life estate which is common for a personal residence.

Your second post indicates there might not have been a legal transfer with a life estate; but mom did live in the second home rent free until death.

Either way you need documentation of the facts to support a transfer per section 2036 and 20-2036-1.

[mcb39]

In any case, it is an inherited house; basis is FMV at time of decedents death.  Therefore, a capital loss can be taken if sold at a loss.  Anyone???

[Margaret CPA in OH]

DANRVAN, I do have a copy of the transfer of deed from mother to daughter (client) for 0 amount.  And I have a copy of a decision Estate of Linderme v. Commissioner, 52 T.C. 305 (1969) which includes the statement, " It has been successfully argued in the past that a right can be retained without being reserved, and that the continued occupancy of the home after the transfer of title, without paying fair market rent, is evidence f an implicit agreement, understanding or assumption of the parties of the transaction."  I think this describes exactly this situation

So I'm going with that.  I appreciate the reminder of the step up in basis and possibility of loss.  It looks like the selling expenses would constitute a small loss.

Thanks again, friends!