Never seen this before / home transfer

[RitaB]

In Oct 2004, Mom and Dad "in consideration of $1, grant to Child A, Child B, and Child C a one-third interest each as tenants in common, reserving unto ourselves a Life Estate in said premises for and during the term of our natural lives."

Dad passed away in 2006.

In 2007, Child A decided that Mom, Child B, and Child C should sell him their interest in house. Say what?!

Settlement statement lists four sellers as Mom, Child A, Child B, and Child C. Buyer is Child A.

Child B is my client. What is her basis? 1/4 of parents' adjusted basis? (If a gift, definitely sold at a gain.)

What just happened here!?

[jainen]

>>grant to Child A, Child B, and Child C a one-third interest each as tenants in common, reserving unto ourselves a Life Estate<<

Your client's basis in the remainder interest is 1/3 of the donor's basis, taking into consideration the actuarial value of the life estate. In other words, the gift was not of 100%, but of some lesser amount depending on life expectancy and so on.

Assuming the parents continued to live in the house as owners, there was a basis step-up (either full or 1/2 depending on title and state law) at the father's death. You will have to determine from the deed if the children inherited his share at that time or continued to hold only the remainder interest. Factors for calculating the actuarial value are given in IRS Pub 1457.

This isn't a very clear explanation because I don't know how to do it.

[zeke]

"This isn't a very clear explanation because I don't know how to do it."

jainen: Just a couple of thoughts. You did much better than I. I tried & gave up. Ms. RCooper will just love the 880 pages of Pub 1457!

[taxxcpa]

"This isn't a very clear explanation because I don't know how to do it."

jainen: Just a couple of thoughts. You did much better than I. I tried & gave up. Ms. RCooper will just love the 880 pages of Pub 1457!

By the time I got to page 879 I gave up on it.

[Don in Upstate NY]

By the time I got to page 879 I gave up on it.

You missed the best part! It wasn't the butler after all. It was the uncle's evil twin brother who had saved his DNA sample in a turkey baster under the false floor of Section 1031.