Simple Schedule D question


A

Andy

This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?

Thank you for all infomed responses....
Andy
 
Ad

Advertisements

B

Barry Picker

Andy said:
This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?

Thank you for all infomed responses....
Andy
The gain/loss is long term, not short term.
 
H

Harlan Lunsford

Andy said:
This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.
Who sold the house? YOu?
Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).
If a gift was made to YOU, then YOU owned the house, and the
basis of the house was cost to the donor.
This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .
Looks like YOU have a problem.

Unless this is a question out of Income Tax 201 at your
local college.

Happy New ChEAr$,
Harlan Lunsford

Dick: why do I think this way?
 
D

David Woods, EA, ChFC, CLU

Andy said:
This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?
No. It is a long-term transaction.
 
G

Gene E. Utterback, EA

Andy said:
This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?
Close, but you probably have a loss for tax purposes, here's
why:

Your basis in the house is the FMV of the property at the
date of death. Some will say you have gotten an appraisal,
but in actuality selling it one week from the date of death
does as good a job as any in setting the FMV. So we know the
sale price and your basis.

Here's what you may have missed - you add to your basis the
costs of the sale including settlement costs and
commissions. So you basis is actually FMV PLUS costs. When
you subtract these from the sale price you should have a
loss of approximately the settlement costs, including
commissions.

The holding period term is long-term - you should show the
date acquired on Schedule D as "INHERITED".

Gene E. Utterback, EA
 
A

Andy

Harlan,

I do not understand your response.. I have addressed
my concerns here...

Harlan said:
Andy wrote:
Harlan said:
Who sold the house? YOu?
Of course. Since the local tax office needed only a death
certificate to clear the grantor with the life estate, there
was no problem..

Harlan said;
If a gift was made to YOU, then YOU owned the house, and the
basis of the house was cost to the donor.
Yes, but under the law, I could do nothing at all until the
Grantor's death. Law says the Grantor is responsibe for
taxes and upkeep until Grantor's death. Only THEN do I have
the right to control the house...... It is assumed that the
Grantor has filed appropriate gift taxes in 1990. The cost
to the Grantor is of no concern, since the gift with life
estate has a step up in basis on Grantor's death...
Looks like YOU have a problem.
Ok... What is the problem ??????
Unless this is a question out of Income Tax 201 at your
local college.
So, if you have taken that course, could you please let me
know what the answer should be.....???

I am afraid I can't divine anything other than "you have a
problem ".......
Dick: why do I think this way?
Dick: Are these the kind of answers you encourage on your
newsgroup???? I was really hoping for more than that..

Moderator:
1) It's our newsgroup, not mine.
2) Harlan is a special case
3) There are NO simple Schedule D questions.
4) There are NO simple Schedule D answers.
5) If you want an answer that is accurate and reasonably
precise (new buzz words here), you will need to wake up
a few more people.
 
Ad

Advertisements

S

Shyster1040

When you received the house you should have taken the
donor's basis in interest you received. You got a remainder
interest, so the basis in what you received may have been
less than the donor's basis (i.e., part of the donor's basis
may have gone into the retained life estate - in interest in
real property with its own separate value). At any rate,
you did not get a step-up in basis due to the donor's death
because you didn't receive the gift as a bequest or in
contemplation of death.

Since you didn't get a step-up basis to FMV, (and since the
value of the house has probably risen appreciably since
1990), you will have a fair amount of gain in the house;
this gain should be long-term capital gain. I am assuming
that you did not use the house as your principal residence.
 
A

Andy

David,

I don't understand.

As a remainder person, I had no control over the property
until the Grantor's death.

The Grantor has the right to live there , or not live there,
with full control over the property until her death. She
alsol had the responsibility to maintain the property and
pay the taxes...

In effect, "gift with reserved life estate" creates a bypass
to probate exactly as "Smith in trust for Jones" has with a
CD account....

I'm not saying you are wrong, but since I had no control or
complete ownership of the property until the Grantor's
death, ,...... why is it a long term capital gain instead
of short term ???

Assuming you are correct, does this have any difference in
the tax due except which part of Schedule D I fill out,
since the step-up in basis for a sale 1 day after the
Grantor's death means the capital gain is zero ?? Thanks for
your opinion.....

Andy
 
B

Bruce Raskin CPA

This refers to Federal Income tax :
I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?
Nope.

Get a copy of the Gift tax Return that was filed after the
gift was made. It will show the value of the house gifted to
you. You should have filed a Gift Tax Return showing the
value of the life estate on the date it was created. Nothing
is simple.

The taxable gain will be the difference between selling
price and gift value to you and will be long term.

Bruce Raskin, CPA
Phoenix, AZ
 
M

MTW

Andy said:
Dick: Are these the kind of answers you encourage on your
newsgroup???? I was really hoping for more than that..
Around here you get what you pay for. We always suggest that
you consult privately with a competent professional when
significant dollars are at stake. This newsgroup is not
intended to be a substitute for such consultation.

MTW
 
A

Andy

Close, but you probably have a loss for tax purposes, here's
why:

Your basis in the house is the FMV of the property at the
date of death. Some will say you have gotten an appraisal,
but in actuality selling it one week from the date of death
does as good a job as any in setting the FMV. So we know the
sale price and your basis.

Here's what you may have missed - you add to your basis the
costs of the sale including settlement costs and
commissions. So you basis is actually FMV PLUS costs. When
you subtract these from the sale price you should have a
loss of approximately the settlement costs, including
commissions.

The holding period term is long-term - you should show the
date acquired on Schedule D as "INHERITED".
Gene,

Thanks. Your answers agrees with the tax code that I
have researched which says that a gifted property with a
life estate has a step-up in basis on grantor's death.

It seems that others here have a different view.

I did not realize that the holding period was long term,
since I had no control or knowledge of the "gift" until this
year.

Let me mention that when the gift was made, 15 years ago, I
was not told about it ---- however the quit claim was done
by an attorney and recorded on the warranty deed. I found
this out shortly before the grantor's death. There was no
problem selling the property, since all that was required
was a death certificate of the grantor to clear the life
estate off of the deed, which, by definition, has NO value
as soon as the grantor dies.....( there is only a life
estate interest value when the grantor is alive )..... (I
suggest that some of the tax experts here should go to
misc.legal.moderated to learn more about ownership ). A
grantee has ZERO rights to control/sell/improve/occupy the
property if a life estate is retained. It's about the same
as a CD which is pod to a beneficiary. The purpose is to
shelter the property from Medicaid, and to avoid probate.

Anyway, I was wondering if the sales costs, which were only
a few thousand, were items that I could claim as a loss.
Thank you for making that clear to me. I really appreciate
getting an informed opinion on this matter.

Andy
 
Ad

Advertisements

A

Andy

Bruce said:
Get a copy of the Gift tax Return that was filed after the
gift was made. It will show the value of the house gifted to
you. You should have filed a Gift Tax Return showing the
value of the life estate on the date it was created. Nothing
is simple.

The taxable gain will be the difference between selling
price and gift value to you and will be long term.
Andy replies to Bruce:

Bruce, the recipient of a gift does not file a gift
tax return. In fact, I was not even made aware of it.
I have NO IDEA of the tax status, filings, or anything
about the grantor.

The grantor had a guardian appointed by the state who
is supposed to do all the grantor's tax stuff, which is
essentially nothing since it was WELL below the limit for
death taxes...... I really doubt that anything will be
done, since there is nothing in the estate to pay the
guardian's, the tax accountant, or the required lawyer. The
house was quit claimed 15 years ago....... Not my problem,
tho.

Tax code says a quit claim with life estate has a
step up in basis the same as an inheritance.....

I value your input, tho, and if you can show me a part of
the code which conflicts with what I have presented, please
let me know...

Andy email: (e-mail address removed)
 
A

A

Andy said:
This refers to Federal Income tax :

I received a gift in 1990 of a house , with the grantor
retaining a life estate.

The grantor died this Octorber, and the house was sold one
week later, with the actual closing in December 2004.

Since the house was sold on approximately the date of
death, I am assuming that the FMV = Sale Price = Cost basis
(due to step-up in basis rule).

This should make Schedule D, short term Cap Gains, very
easy to fill out. Cap gain = 0 , tax = 0 .

Is this correct ?
Transfers made during the life of the decedent that are
recaptured and taxed within his estate at his death are
entitled to a "step-up" in basis (Code Sec. 1014(b)(9)).
Additionally, the holding period of property aquired from a
decedent is always deemed long term Code Sec. 1223(11).
 
S

Seth Breidbart

As a remainder person, I had no control over the property
until the Grantor's death.
Correct.

In effect, "gift with reserved life estate" creates a bypass
to probate exactly as "Smith in trust for Jones" has with a
CD account....
Also irrelevant.
I'm not saying you are wrong, but since I had no control or
complete ownership of the property until the Grantor's
death, ,...... why is it a long term capital gain instead
of short term ???
You had a future interest, which you gained a long time ago.
You sold it recently. The difference in time is therefore
long.
Assuming you are correct, does this have any difference in
the tax due except which part of Schedule D I fill out,
since the step-up in basis for a sale 1 day after the
Grantor's death means the capital gain is zero ?? Thanks for
your opinion.....
I don't think there's any step-up, since the property wasn't
in the estate.

Seth
 
Ad

Advertisements

A

Andy

A said:
Transfers made during the life of the decedent that are
recaptured and taxed within his estate at his death are
entitled to a "step-up" in basis (Code Sec. 1014(b)(9)).
Additionally, the holding period of property aquired from a
decedent is always deemed long term Code Sec. 1223(11).
Thank you for your reply, and the quote from the tax
code that verifies it...

I knew the answer, from other sources, and was put
off a little from the various replies that came from
others here.....

Your reply is the kind of answer that I expected from this
newsgroup. I really appreciate your effective reply..
Andy
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top