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Tax Law (Questions About Taxes)/Life Estate - Capitol Gains


My mother established a Life Estate for her home in 2008 with myself and 4 siblings as remaindermen.  She purchased the home in 2004.  She passed away in 2011.  We sold the home in 2012 for less than she paid in 2004 and also for less than FMV in 2011.

What do we need to do for our taxes?  Do we qualify for or complete anything for a capitol loss?  If so, would we include things such as real estate fee, attorney closing costs, costs to prepare the home for sale (paint, etc.)?

When you took title to the home prior to your mother's death, even though you did not live there, you effectively kept the basis in the property at the 2004 level. It does not get a step up in basis in 2011.

Since you sold the home for less than 2004's value, you will report this on your tax as a sale, but with basis higher than sale price, you will need adjust this sale price so there is no gain or loss. A loss on a personal property is not deductible since you technically owned it.

There will be no positive or negative impact on your tax returns. You report only the portion of the house that pertains to your ownership share.

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Randall Klein, MBA, EA


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