Basis determination on real estate obtained via a quit claim deed and joint tenants with survivorship

Forum|Forum|2 years ago
March 4, 2024
1 reply
0 views

In 2019, and unknown to his children, my father in law fully executed a quit claim deed for $1 and named himself and his three children as tenants with rights of survivorship of the home in which he lived. He was divorced and his wife, the children's mother, had previously passed. We cannot find any evidence that gift tax forms were filed in 2019. My wife was named his personal representative.

All 3 children have received 1099 S forms.

For the basis calculation:

- start with the price he paid for the property?

- fair market value at the time of the quit claim deed (2019)?

- stepped up basis at time of his passing?

- stepped up basis at the time of the sale?

- the $1 named on the quit claim deed?

- other?

The quit claim deed was signed, witnessed and recorded.

Not A Product Question

Best answer by Hal_Al

Q. What is the basis?

A. Probably stepped up basis at time of his passing.

The usual rule, for a gift, is that the recipient's basis is the giver's basis (what you father-in-law paid for it). But there is an exception for the gift of his home, where he retained the right to live there ("life estate"). "If you give away an asset and keep a life estate in that asset..... the cost basis of the house is "stepped-up" to the value of the house on date of death [IRC 2036]")

More info: http://www.law.cornell.edu/cfr/text/26/20.2036-1

A life estate does not have to be explicitly established in the deed. Your father-in-law probably had an "implied life estate." If so, that would give you the stepped up basis. There is case law on this.

http://accessiblelaw.org/Documents/LifeEstates-Inheritances.pdf(IRS document)

ThermmannAuthor

I likely should mention that he passed in February 2022

DianeW777

First, the basis for the children will begin with the same basis as their father's basis at the time of the gift (2019) split between all of the owners which would mean it would be divided by four (three children and father). Next, on the date of death of their father, his share would get a stepped up basis, then that portion would be divided by the three children remaining on the deed.

Example: Father paid $50,000. In 2019 it is divided by 4 giving each person a cost basis of $12,500. In 2022 the fair market value is $75,000.
$75,000 divided by 4 = $18,750 which is now the stepped up basis for the father's portion only. $18,750/3 children = $6,250
$12,500 + $6,250 = $18750 cost basis for each child on the date of death of their father. Or you could just stop at the stepped up value divided by 4 owners immediately preceding death.

The fact that a gift tax return was not done, does not change the outcome of the cost basis for the children. The good news is they get to use the cost basis shown above and not the $1 transfer through the quit claim deed.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

JJP2024

Hey @DianeW777

I am reading your response because I've been looking at a similar circumstance pertaining to one of my clients. I've went through it a couple of times and the statement "Or you could just stop at the stepped up value divided by 4 owners immediately preceding death" with the value of $18750 equaling the same $18750 value derived from taking into account your whole calculation only seem to equal one another by coincidence. If you were to change that the father had paid $30,000 for the property in 2019 you wouldn't be able to say "Or you could just stop at the stepped up value divided by 4 owners immediately preceding death".