Selling a Life Estate House

[HardlyOld]

What is the name of your state? New York.

My parents bought their home in 1965 for $25,000. They transfered their home through a Life Estate to my sister and myself in 1999 to avoid long term health care costs. The cost basis at that time was approximately $300,000. Both my sister and myself are on the deed. My parents are the sole occupants of the house from the beginning and now wish to sell it and buy a condo. They are selling it for $480,000. My parents are both 76 years old and they are buying a condo for $350,000. I guess this is a two part question. What will our cost basis be for the capital gains claimed and should me and my sister just purchase the condo for them and keep it in our name?

 

[anteater]

I suggest that you post this on the Tax Law forum. Life estates can be tricky.

However, one question....

My parents bought their home in 1965 for $25,000. They transfered their home through a Life Estate to my sister and myself in 1999 to avoid long term health care costs. The cost basis at that time was approximately $300,000......

Are you saying that, between 1965 and 1999, your parents made $275,000 worth of improvments (that can be documented)? Or do you mean that the fair market value of the house was $300K in 1999?

 

[lwpat]

You need to talk to a real estate attorney about doing a like kind exchange. If it was a gift your cost basis is zero.

 

[HomeGuru]

I agree**************

 

[FlyingRon]

They transfered their home through a Life Estate to my sister and myself in 1999 to avoid long term health care costs.

No, they transferred the property to you (through some sort of deeded transfer) subject to a life estate.

The cost basis at that time was approximately $300,000.

No, unless they made $275,000 of improvements, the basis remains $25,000.

Both my sister and myself are on the deed.

A gift transfer inherits the grantor's basis $25,000. Did the parents retain any ownership (i.e., what was the nature of the transfer)? Even so it was a stupid thing for them to do.

My parents are the sole occupants of the house from the beginning and now wish to sell it and buy a condo.

They can only sell what they own. If they deeded the entire property over to the kids, they can't sell squat (other than their life estate which probably isn't worth much.

They are selling it for $480,000. My parents are both 76 years old and they are buying a condo for $350,000. I guess this is a two part question. What will our cost basis be for the capital gains claimed and should me and my sister just purchase the condo for them and keep it in our name?

Why should you buy it? You seem to already own it. Do you want a condo?

 

[HardlyOld]

You need to talk to a real estate attorney about doing a like kind exchange. If it was a gift your cost basis is zero.

What is a "like kind exchange"?

And yes I meant the fair market value was $300,000 in 1999.

Being that me and my sister actually own and are selling the house we would like to buy the condo so my parents could live in it, so is that where the "like kind exchange" comes in?

Do we have any other options before we actually sell the house?

 

[anteater]

I don't know if this would qualify for a 1031 exchange since it was not actually investment property.

You can get more info in this IRS pub;
http://www.irs.gov/pub/irs-pdf/p544.pdf

The best advice is what you received earlier: get thee to a real estate attorney/tax professional before you all get deeper in the doo-doo.

(By the way, did your parents file a gift tax return when the 1999 transfer occurred?)

 

[FlyingRon]

You need to talk to a real estate attorney about doing a like kind exchange. If it was a gift your cost basis is zero.

If you're talking about a 1031 exchange. This doesn't qualify.