Capital Gains on sale of home stepped up value

Forum|Forum|2 years ago
January 31, 2024
2 replies
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The state is Massachusetts. In 2008 my Mom passed and my Dad decided to remove her from the deed and add me at the same time. Not thinking of the tax consequences at the time. During that time he retained the right to live there (life estate). We'll he passed in 2023 and with me being on the deed it made it easy to sell the house to my Nephew. I had the house appraised when he passed at 300K. I sold to Nephew for 250K. I split the proceeds among my siblings. When I report the sale of the home does the value step up to the value at 2008 or 2023? If 2023 and sold for less can it be reported as a loss? Also do I have to report the proceeds to siblings as a gift? It was stated in his will to split his estate. Thanks

Ask the Experts - Early Filers - Jan 2024

Best answer by Anonymous_

I think I like your answer the best. You are saying that the stepped up basis would be the value of the time of his death in 2023?

@mgawro01 wrote:

I think I like your answer the best. You are saying that the stepped up basis would be the value of the time of his death in 2023?

Yes, provided the facts are as you stated them; that your Dad quitclaimed the property to you while retaining a life estate for himself.

DianeW777

The cost basis for you will be half of the fair market value (FMV) on the date of death and half of your father's actual cost of the home since it was actually gifted to you in 2008. You may have to use an educated amount from information you have. You would have been considered equal owner with your father during those years from the date your name was put on the deed.

Once you determine the cost basis for yourself you will report the sale for your half of the house. As far as your siblings they would report their proportionate share using your half the FMV on the date of death ($300k per your information) for the half they actually inherited. Since your father put you name on the house, the other siblings were entitled to his half of the house as inheritance. They would split the half of FMV between them.

If you did not live in the home it would be considered an investment sale, not a home sale. It would be the same for any of the siblings.

If you were issued a 1099-S, you can issue a 1099-S to each of them for the part of the proceeds they each received. It moves from you to them (assuming you did receive a Form 1099-S, if not there is nothing for you to complete for them).

Nominee returns.

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received). You must also furnish a Form 1099 to each of the other owners.

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

On each new Form 1099, list yourself as the payer and the other owner, as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer. The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here:

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mgawro01Author

Employee

Thanks for answering my question. Just want to confirm your statement below. So if I determine my cost basis to be $170K and I sold the house for $250K do I only report the sale for half of the house ($125K)? A loss in this case

I received a check for the sale and wrote a check to each of my siblings from my account does that change anything?

"Once you determine the cost basis for yourself you will report the sale for your half of the house."

Anonymous_

Employee

@mgawro01 wrote:
"Once you determine the cost basis for yourself you will report the sale for your half of the house."

Sorry, that's wrong. Title to the house did not pass via the will; title, as a remainderman, passed to you (in fee simple) outside of the will.

The form of the deed overrides whatever is stated in the will and title passes by operation of law according to what is stated in the deed.

Technically, you were entitled to retain the entire amount of the proceeds from the sale (the house was yours). If you split any of the proceeds with your siblings, that would be a gift from you to them.

Also, note that after your Mom passed, your Dad most likely owned the property in severalty (i.e. fee simple by himself) since, presumably, your Mom and Dad held title as JTWROS. As a result, after your Dad added you as a remainderman of his life estate (on the deed) and then passed, your basis was stepped up to the fair market value of the property on the date of his passing.

Anonymous_

Employee

@mgawro01 wrote:

Also do I have to report the proceeds to siblings as a gift? It was stated in his will to split his estate.

If you were the only "remainderman" (the only person on the deed that would succeed in ownership following the life estate), then you were the sole owner by operation of law after your father's passing.

As a result, the will would be ineffective to pass title as it passed outside the will (outside the estate).

You should seek local legal counsel and/or guidance from a tax professional for this matter.