Question

Capital Gains tax

Forum|Forum|1 year ago
September 27, 2024
3 replies
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My parent (who was single) passed away earlier this year, and they had a mobile home on leased land, that they used as their primary residence. My parent did not have a will or anything to probate. This mobile home was in my parent's name, for the last 10 years, up until this year. My parent added me to the title, (title was in my name and the parent name) then, my parent passed away not long after. I have this mobile home for sale and am wondering if I will have to pay capital gains taxes on it or claim it as income when it sells, since the title has my parent's name and my name on the title, as an "OR"? If I will have to pay capital gains tax, what tax year would I have to claim that if the mobile home sells in this current year (2024)? Any help is appreciated!

Other

A

Anonymous_

Employee

You probably have a good argument that the intention was for your to be a remainderman while your parent retained a life estate.

See https://www.law.cornell.edu/cfr/text/26/20.2036-1

In that respect, your basis would be the fair market value on the date of your parent's death.

You might want to consult a local tax professional.

See https://taxexperts.naea.org/expertdirectory

I am sorry for your loss.

R

rainnotes18Author

There was no life estate setup between my parent and myself. My parent simply had the mobile home with no will and nothing to probate, since the mobile home shared my name on it's title. My parent added my name, as an "OR", to the mobile home, prior to their death, during this year (2024). My concern is the mobile home and how I will personally have to show income or the potential of capital gains taxes.

Surely, someone has been in my position of being on the title of a parent's collateral, then having to sell it soon after. I'm just trying to be prepared of what I need to do. I'm trying to avoid it as income to myself, and thinking of transferring the title into another trusted family member's name, prior to it selling....

Any suggestions?

A

Anonymous_

Employee

What you proposed won't work to avoid capital gains.

I was referring to an implied life estate.

M

Mike9241

because laws differ from state to state, i would suggest contacting a lawyer to advise you of the type of ownership you have and the tax consequences of any sale.

it could be any of the following each with different tax consequences

1)a life estate

2) as tenants in common

3) joint ownership.

O

Opus 17

Employee

The point of the prior experts is the following:

If there was a life estate in writing, you would receive the property with a fully stepped up basis, and likely owe no capital gains tax assuming the home does not increase in value between the date of death and the date of sale.

However, even if there is no life estate in writing, it might be implied by the facts and circumstances, and that also gives you a stepped up basis. The problem with an implied life estate is proving it if audited--you might have emails with your parents discussing their reasons for adding you to the title, for example. But just because it is harder to prove doesn't mean it is not valid.

If we assume there is no implied life estate, then you need to calculate your basis. Let's assume the mobile home cost $30,000 and there are no adjustments like improvements. When your parent gave you a half-share, your cost basis in that half-share is $15,000. Let's then assume the home is worth $50,000 on the date of death. You inherited the other half with a stepped up basis of $25,000, for a total basis of $40,000. So whether you owe capital gains tax, and how much, depends on the selling price compared with your basis. (You can also subtract the real estate commission and certain other closing costs, see publication 523 on page 8. https://www.irs.gov/forms-pubs/about-publication-523)

I want to emphasize that is the worst-case scenario. So what I would do is figure out the tax if you assume you have an implied life estate, and also as if you don't. (Depending on your financial situation, the capital gains tax could be zero, 15% or 20%.) Once you know how much you will save by claiming an implied life estate, you can decide whether that savings is worth a professional consultation as recommended.

I am also of the impression that mobile homes don't really appreciate in value, so you might have a capital loss rather than a gain, no matter how you figure your basis.

The gain is reported in the year of the sale (2024).

A

Anonymous_

Employee

@Opus 17 wrote:
The problem with an implied life estate is proving it if audited....

"My parent added me to the title......my parent passed away not long after."

That is the usual scenario and should be sufficient to establish a life estate by implication (i.e., short period of time between the addition and the passing) if necessary.