Life estate

Forum|Forum|1 year ago
June 6, 2024
2 replies
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My mother passed away and was a tenant of a life estate. My two siblings and I now have the home. We are selling the home well below the cost basis of the home. Do we have to report this sale on our taxes

Best answer by M-MTax

supports possible deductibility of the loss since the home is a capital asset held by the estate.

This was a life estate so the home never wound up in the estate at all.....title vested in the remaindermen as soon as mom passed.

Mike9241

Sorry for your loss. your tax basis is the Fair Market Value on the date of the date of her death.

If the value of the home declines after the date of death, or if a loss is generated due to selling costs, case law (Miller, T.C. Memo. 1967-44, and Watkins, T.C. Memo. 1973-167) supports possible deductibility of the loss since the home is a capital asset held by the estate.

M-MTaxAnswer

supports possible deductibility of the loss since the home is a capital asset held by the estate.

This was a life estate so the home never wound up in the estate at all.....title vested in the remaindermen as soon as mom passed.

Opus 17

Employee

You may be able to treat this as the sale of investment property, rather than sale of a home. As investment property, you can take a tax deduction for a loss (sale below cost basis) when you can't take a deduction for a loss on personal property. The key question is did any of the siblings live in the home or use it for personal use.

For example, if sibling A lived in the home and took care of mom, but siblings B and C did not, then A can't deduct the loss on their share but B and C can deduct a loss. Or, suppose mom had a house on a lake, and all the siblings took one last vacation at the lake before selling. That would make the sale personal.

Also, if you received a 1099-S at the closing, you must report it on your tax return even if there is no taxable income or deductible loss, because the IRS will be looking for that 1099-S to be accounted for.

M-MTax

For example, if sibling A lived in the home and took care of mom, but siblings B and C did not, then A can't deduct the loss on their share but B and C can deduct a loss.

That also makes no difference because a sibling would have lived in the home before they had any interest in the home that could be conveyed.....they only had a remainder. So the issue is whether a sibling lived in the home after mom passed and before it was sold.

M-MTax

There is also this on the subject of a deduction by the estate.

https://www.thetaxadviser.com/issues/2023/apr/10-estate-and-income-tax-questions.html

Despite case law supporting possible deductions, IRS Chief Counsel Memorandum 1998-012 explains that such a deduction is allowed only when the property has been converted to an income-producing property. The memorandum is not authoritative; however, it does provide insight into the IRS’s position and highlights an area of potential scrutiny.