Exclude gain on residence - retain life estate

[John]

I'm still waiting for an answer on this one.

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?

 

[Stuart Bronstein]

I'm still waiting for an answer on this one.

Well, it's a fairly complicated issue, and one that does not
arise often. Perhaps you should pay someone to get a good
answer.

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?

Under IRC section 121(d)(8)(A), if you sell a remainder
interest in property, you can elect to exempt your income or
not. The exemption does not apply to the sale of any other
partial interest in property.

Then section 121(d)(8)(B) says that 121(d)(8)(A) does not
apply to a sale to certain relatives.

That seems to me to mean that a sale to these relatives
would allow you to exempt the income even if it is a partial
interest that is not a remainder interest.

So it appears that the answer to your question is yes, you
can exempt the income.

I have not reviewed the regulations or any applicable case
law, so you shouldn't rely on this in doing your tax
planning.

Stu

 

[Lynn Guini]

I'm still waiting for an answer on this one.

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?

John, since this is a moderated group (thank goodness!), it
sometimes takes a while for replies to show up. It is worth
the wait, not having to sift through the rubbish found in
abundance on other tax groups. There are a couple of
replies to your original post as I type this.