Question

Tax basis for property after death of lifetime tenant

Forum|Forum|4 years ago
February 10, 2022
3 replies
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My grandfather died in 1976 and his will was probated in 1977. His will left the farm as follows: To (my Dad) for his lifetime and at his death to his children, Brother 1, Me, Brother 2. My Dad died in Jan 2022.

The probate in 1977 showed the farm value as $27,500 and allocated that value to my father at $16,500 (“present value of life estate”) with the $11,000 remainder divided among my brothers and me.

We are getting ready to sell and want to know what to plan for with taxes. Is the cost basis as of my grandfather’s death or my father’s death? Or something else?

LeonardS

Your cost basis will be the Fair Market Value on the day your father died in Jan 2022.

You will not report any of this on your 2021 tax returns. Your Dad passed away in 2022 so you will report this on your 2022 tax return.

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A

Anonymous_

Employee

@Satxlady wrote:
We are getting ready to sell and want to know what to plan for with taxes. Is the cost basis as of my grandfather’s death or my father’s death? Or something else?

We just had a thread with a similar scenario.

Re: Determine FMV of home in trust with life lease... (intuit.com)

@Rainman12 posted the following link (read the hypothetical).

Agricultural Law and Taxation Blog (typepad.com)

S

SatxladyAuthor

Thanks for the replies so far.

I like Leonard S.'s answer but when I read other answers, I question if it applies in our case. The good news is that he reminded me that we won't need to worry about it until next year.

The string Champ referred me to applied to a trust but the land in question was never in a trust. Nor did my father have the right to sell it or do anything other than use it and it is not considered part of my father's estate.

One of the linked articles mentions that common acquisition date and a common basis for life tenants and remainder holders".

The suggestion (in multiple places in linked articles, etc.) to seek legal counsel and professional tax advice is probably what I'll need to do. I was hoping it was simpler than that but I'll bite my pride and finally go to a professional. I've always done my own taxes for the past 50 years (even when I sold stock) but I think I've finally found one I can't handle on my own.

A

Anonymous_

Employee

@Satxlady wrote:
I like Leonard S.'s answer but when I read other answers, I question if it applies in our case.

That is the standard answer which is applicable in the vast majority of cases where property is acquired from a decedent. However, it is applicable where the property is acquired in fee simple (if the property is real estate) and where the property is acquired without any contingencies.

You clearly should like that answer because it is certainly the most favorable in terms of income taxation (capital gain). Unfortunately, that does not mean it applies to your particular scenario.

In this instance, you have several devisees (beneficiaries named in the will) who received different interests; one was a life estate and the other was a remainder. I suspect the remainder will have to be valued as of the date the original decedent (the grandfather) passed.