Exclude gain on residence - retain life estate?

[John]

If a married couple sells their personal residence (it sits
on 80 acres of land) but retains a life estate in the
residence, does retaining the life estate disqualify them
from exclusion of gain on the residence?

 

[D. Stussy]

If a married couple sells their personal residence (it sits
on 80 acres of land) but retains a life estate in the
residence, does retaining the life estate disqualify them
from exclusion of gain on the residence?

If they are retaining any rights, how is that a completed
sale? If you have some specific IRC section in mind, please
cite it.

 

[Ed Zollars, CPA]

If a married couple sells their personal residence (it sits
on 80 acres of land) but retains a life estate in the
residence, does retaining the life estate disqualify them
from exclusion of gain on the residence?

They *may* be able to elect to use it, if they aren't
selling to certain related parties. See IRC Section
121(d)(8) and the related regulations.

 

[Dave Woods]

John wrote:

If they are retaining any rights, how is that a completed
sale? If you have some specific IRC section in mind, please
cite it.

Good question. As best I can gather, this sounds like a
sale with a right to occupy subsequent to the sale date.

 

[Christopher Green]

John wrote:

If they are retaining any rights, how is that a completed
sale? If you have some specific IRC section in mind, please
cite it.

A sale of a partial interest, including a remainder interest
when a life estate is retained (except in a sale to a
related party) is apparently entitled to the exclusion. If
other kinds of partial interest are sold piecemeal, a single
exclusion applies to all the sales taken together: the
balance after a partial sale can be applied to later partial
sales. But if a sale is made with a retained life estate,
the life estate gets no exclusion if it is later sold. It is
not clear to me exactly whether or how the regulation
applies in a sale of a remainder to a related party.

See Treasury regulation TD 9030, online at
http://edocket.access.gpo.gov/2002/pdf/02-32281.pdf

 

[Lynn Guini]

John wrote:

If they are retaining any rights, how is that a completed
sale? If you have some specific IRC section in mind, please
cite it.

it is a completed sale of something less than a fee simple
absolute. Which leaves the OP's question still open.

 

[Lynn Guini]

John wrote:

They *may* be able to elect to use it, if they aren't
selling to certain related parties. See IRC Section
121(d)(8) and the related regulations.

where is a good place on the internet to look up IRC
sections? Any good CCH type help on line for the occasional
user?

 

[John]

Thanks for you assistance. I did find this:

http://www.pgdc.com/usa/item/?itemID=22664&g11n.enc=ISO-8859-1

Rev Rul 84-43 allowed exclusion of gain on residence under
the old "once in a lifetime age 55" provision, where the
taxpayer sold a life estate in his residence. It is my
opinion taxpayer can sell a life estate in his personal
residence and exclude the gain under Sec 121.

 

[Stuart Bronstein]

where is a good place on the internet to look up IRC
sections? Any good CCH type help on line for the
occasional user?

While it's not perfect, I usually go to
http://www4.law.cornell.edu/uscode/

Stu

 

[D. Stussy]

A sale of a partial interest, including a remainder interest
when a life estate is retained (except in a sale to a
related party) is apparently entitled to the exclusion. If
other kinds of partial interest are sold piecemeal, a single
exclusion applies to all the sales taken together: the
balance after a partial sale can be applied to later partial
sales. But if a sale is made with a retained life estate,
the life estate gets no exclusion if it is later sold. It is
not clear to me exactly whether or how the regulation
applies in a sale of a remainder to a related party.

See Treasury regulation TD 9030, online at
http://edocket.access.gpo.gov/2002/pdf/02-32281.pdf

I am aware that some rights (e.g. mineral/oil) can be
retained. My response was meant to make the original poster
aware that not all partial interests count - plus it was
unclear to me whether what they were keeping was a qualified
partial interest.

I really don't like the use of the word "estate" when used
in the context of when someone is still alive and they
really mean trust.

 

[D. Stussy]

where is a good place on the internet to look up IRC
sections? Any good CCH type help on line for the occasional
user?

www.law.cornell.edu seems to keep up to date, but don't
expect "CCH" type commentary.

 

[Arthur L. Rubin]

I really don't like the use of the word "estate" when used
in the context of when someone is still alive and they
really mean trust.

I believe the technical term IS "life estate", regardless
of the fact that it isn't an "estate" or trust.

 

[Stuart Bronstein]

Christopher Green wrote:

I am aware that some rights (e.g. mineral/oil) can be
retained. My response was meant to make the original poster
aware that not all partial interests count - plus it was
unclear to me whether what they were keeping was a qualified
partial interest.

I really don't like the use of the word "estate" when used
in the context of when someone is still alive and they
really mean trust.

You don't need to die to have an estate. And a trust is
only one of several methods of handling an estate, so there
is no reason to use that word when, as in this case, it has
nothing to do with the issue.

Stu

 

[/brian]

Lynn Guini wrote:

www.law.cornell.edu seems to keep up to date, but don't
expect "CCH" type commentary.

Cornell is, AFAIK, based on the repository at
<http://uscode.house.gov>.
The latter is easier to use to look up individual sections
while the former is easier to read in its proper form,
(i.e. when you don't know the proper code section).

The Regs can be found at <http://www.gpoaccess.gov/ecfr/>.

Also useful are the repositories of rulings, (mostly since 2000), at
the IRS website: <http://www.irs.gov/pub>. http://www.taxlinks.com
has all of the revenue rulings of the modern era, sometimes with a
note indicating whether it has been superceded. The Tax Court,
<http://www.ustaxcourt.gov>, now has rulings online going back to
1995. You can find links to other federal courts at
<http://www.uscourts.gov>, though most of them do not have many
opinions online.

/brian

 

[Lynn Guini]

I am aware that some rights (e.g. mineral/oil) can be
retained. My response was meant to make the original poster
aware that not all partial interests count - plus it was
unclear to me whether what they were keeping was a qualified
partial interest.

I really don't like the use of the word "estate" when used
in the context of when someone is still alive and they
really mean trust.

the OP correctly used the word "estate", by referring to a
"life estate", in contrast to a "decedent's estate" or other
types of estates. not a trust.

fortunately for the OP and others following this thread with
interest, there are other posts that give good insight into
this issue.

 

[Christopher Green]

I am aware that some rights (e.g. mineral/oil) can be
retained. My response was meant to make the original poster
aware that not all partial interests count - plus it was
unclear to me whether what they were keeping was a qualified
partial interest.

I really don't like the use of the word "estate" when used
in the context of when someone is still alive and they
really mean trust.

"Life estate" does not mean "estate" in the sense of a
probate or bankruptcy estate; you may not like the usage,
but it is well established.

A life estate is an interest for life in property. It is
very common to sell or give away property while retaining a
life estate: the seller or donor retains the use of the
property so long as he or she lives; the remaindermen get
the property when he or she dies.

The Treasury reg I cited has specific provisions covering
transfers of property with a retained life estate, which is
what the OP asked about. Other partial transfers have
different rules, but they are not in question.