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Author: akatschi1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121341  
Subject: gift property taxes Date: 4/1/2001 8:30 PM
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In 1983, my father gifted my brother and myself a property that my brother lived on from before then to when he and I sold it in 2000. My father officially lived there from 1986, but I could probably prove he was there from 1983. My father died in 1998. My brother and his wife will take $500,000 in capital gains exclusions. I am wondering if my tax basis can be stepped up to 1998 when my father died; none of them paid rent to me and the intent at the time the property was gifted was to avoid inheritance taxes. I paid the taxes in 1998. Otherwise my basis will be my father's basis when he inherited it in 1953.

Thank you for any information.
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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49429 of 121341
Subject: Re: gift property taxes Date: 4/1/2001 8:54 PM
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akatschi1: "In 1983, my father gifted my brother and myself a property that my brother lived on from before then to when he and I sold it in 2000. My father officially lived there from 1986, but I could probably prove he was there from 1983. My father died in 1998. My brother and his wife will take $500,000 in capital gains exclusions. I am wondering if my tax basis can be stepped up to 1998 when my father died; none of them paid rent to me and the intent at the time the property was gifted was to avoid inheritance taxes. I paid the taxes in 1998. Otherwise my basis will be my father's basis when he inherited it in 1953."

Unfortunately, you cannot have your cake and it eat, too.

Either it was a gift in 1983, and thus avoided estate taxes upon your father's passing in 1998, or it was not a gift and your father owned it at his death and it was includible in the valueof your father's estate.

There is no gift that avoids estate tax and also benefits from the step-up in value for assets passing through an estate.

If it is any consolation, it should be LTCG taxed at a maximum of 20%.

Regards, JAFO




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Author: akatschi1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49430 of 121341
Subject: Re: gift property taxes Date: 4/1/2001 9:03 PM
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Thank you for your reply. I was basing my hopes on the "life estate" principle touched upon in #41406. Any chance that would apply here?



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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49435 of 121341
Subject: Re: gift property taxes Date: 4/2/2001 1:01 AM
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akatschi1: "Thank you for your reply. I was basing my hopes on the "life estate" principle touched upon in #41406. Any chance that would apply here?"

I have not read #41406, at least not recently, but for your father to have had a life estate in the property, he would need to have reserved it (or excepted it, if previously existing) in the deed to your and your brother. You cannot retroactively (and posthumously) create a life estate that did not exist back in the 1980s.

Estate tax is not my forte, but I beleive that a reserved life estate would have changed the estate issues surrounding the gift. You will need to review the deed (and possible other title conveyances), but I tend to doubt that life estate existed --- it would be unlikely to be created inadvertently.

Regards, JAFO


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Author: akatschi1 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49441 of 121341
Subject: Re: gift property taxes Date: 4/2/2001 8:14 AM
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Hi,

Thanks again for the info. I attach 41406 for you to read, but I am not sure it will help.

The Motley Fool Discussion Boards
Subject: Re: Taxable home sale?
Date: 11/1/2000 12:38:56 PM
Number: 41406
Author: JAFO31
URL: http://boards.fool.com/Message.asp?mid=13606759

HatchetJack: "While title changes of realty are generally completed
gifts, if the donor retains a life estate by continuing to occupy the
property rent-free for example, the full value would be taxed as of the
date of death."

Assuming that the donor retains an interest in the property, the donor
may
not need to keep a life estate in order to be allowed to occupy the
property (or to avoid paying rent to the other co-owners). The last
time
I looked for Texas, each co-owner is permitted to occupy the property
(but
not exclude the other co-owners) and need not pay any rent or otherwise
account for any implied rent because co-ownership carries with it the
right to occupy the property. All of my discussion presumes that the
co-owners do not have some kind of agreement among owners.

"Keep in mind the general fallacy of gifting low basis property in
later
life, especially ones covered by income tax exemptions on sale such as
your principal residence."

Agreed.

Regards, JAFO



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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 49448 of 121341
Subject: Re: gift property taxes Date: 4/2/2001 11:05 AM
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akatschi1: "Thanks again for the info. I attach 41406 for you to read, but I am not sure it will help.

URL: http://boards.fool.com/Message.asp?mid=13606759

[HatchetJack]: <<<<"While title changes of realty are generally completed gifts, if the donor retains a life estate by continuing to occupy the property rent-free for example, the full value would be taxed as of the
date of death.">>>>

[JAFO] <<<<Assuming that the donor retains an interest in the property, the donor may not need to keep a life estate in order to be allowed to occupy the
property (or to avoid paying rent to the other co-owners). The last time I looked for Texas, each co-owner is permitted to occupy the property (but
not exclude the other co-owners) and need not pay any rent or otherwise account for any implied rent because co-ownership carries with it the right to occupy the property. All of my discussion presumes that the
co-owners do not have some kind of agreement among owners.>>>>

[HJ] <<<<"Keep in mind the general fallacy of gifting low basis property in later life, especially ones covered by income tax exemptions on sale such as your principal residence.">>>>

[JAFO] <<<<Agreed.>>>>

I would suggest that your problem arises from the issue discussed in the second paragraph that HatchetJack wrote (and my agreement therewith).

We have already discussed creating a life estate in a prior post. You indicated that your father conveyed the entire property to you and your brother and did not retain any ownership interest. The discussion in the first paragraph that HJ wrote and to which I responded would address why your brother (a co-owner) could occupy the property without paying rent to you (at least in Texas).

Unless your father reserved (or excepted an existing( life estate or retained an undivided ownership interest in the property, I supsect that you are SOL.

If you are still unsatisfied, then I suggest that you probably need to hire an accountant and/or an attorney to review the situation for you with all relevant information in hand. The best time to have done most of this planning would have been before your father conveyed the property to your and your brother, and at that time the 250k/500k exclsuion did not exist, the old roll-over rules were in effect.

Regards, JAFO




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