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Appx. 1 year ago my grandmother changed the deed on her home to include my mother. It was mistakenly filed as "joint tenants in common". Recently my grandmother died, willing her home to my mother. The home (worth well below any inheritance tax value) was recently sold. Are there capital gains implications from this sale?
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Appx. 1 year ago my grandmother changed the deed on her home to include my mother. It was mistakenly filed as "joint tenants in common". Recently my grandmother died, willing her home to my mother. The home (worth well below any inheritance tax value) was recently sold. Are there capital gains implications from this sale?

Yes, there are. The tax basis of the house is the fair market value on the date of your grandmother's death. The holding period is considered long-term for inherited assets.

Your mother would then calculate the gain (or possibly loss because of the transaction costs) in the usual way - selling price less tax basis less selling costs.

--Peter
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ptheland:

<<<<Appx. 1 year ago my grandmother changed the deed on her home to include my mother. It was mistakenly filed as "joint tenants in common". Recently my grandmother died, willing her home to my mother. The home (worth well below any inheritance tax value) was recently sold. Are there capital gains implications from this sale?>>>>

"Yes, there are. The tax basis of the house is the fair market value on the date of your grandmother's death. The holding period is considered long-term for inherited assets.

Peter: Any chance that only 1/2 of the house received a stepped-up basis? I am unsure what the original poster meant by "changed the deed on her home", but if grandmother executed a deed to one-half the house to her daughter [original poster's mother], might that not be considered a completed gift, at grandmother's basis, and therefore not part of the estate? Or would the fact that it was done less than three years before death and not for reasonably equivalent value (or fair market value, or insert appropriate terminology) mean that it was ignored and entire house was considered part of her estate for FET purposes and therefore entitled to step-up in basis?

"Your mother would then calculate the gain (or possibly loss because of the transaction costs) in the usual way - selling price less tax basis less selling costs."

Agreed.

Curiously, JAFO

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Any chance that only 1/2 of the house received a stepped-up basis? I am unsure what the original poster meant by "changed the deed on her home", but if grandmother executed a deed to one-half the house to her daughter [original poster's mother], might that not be considered a completed gift, at grandmother's basis, and therefore not part of the estate? Or would the fact that it was done less than three years before death and not for reasonably equivalent value (or fair market value, or insert appropriate terminology) mean that it was ignored and entire house was considered part of her estate for FET purposes and therefore entitled to step-up in basis?

Somehow the thoughts in my head on this issue didn't make it through to the fingers. I agree with you that I'm unsure about the purpose behind changing the deed.

If it were simply a part of an overly simplified estate planning technique - a way of getting the home to the intended heir(s) - then I would think the whole property would get a step up in basis.

If, on the other hand, it was intended as bona fide transfer of a part interest, then the step up would not apply. Except, of course, that the giver passed away less than three years after the gift was made, so the gift gets included in the estate at date of death value (rather than at the value at the time of transfer) and the whole property again gets a step up.

A rather messy way of saying that I think the whole property will get a step up in basis no matter what the intent was behind the change in title to the property.

--Peter
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Any chance that only 1/2 of the house received a stepped-up basis? I am unsure what the original poster meant by "changed the deed on her home", but if grandmother executed a deed to one-half the house to her daughter [original poster's mother], might that not be considered a completed gift, at grandmother's basis, and therefore not part of the estate? Or would the fact that it was done less than three years before death and not for reasonably equivalent value (or fair market value, or insert appropriate terminology) mean that it was ignored and entire house was considered part of her estate for FET purposes and therefore entitled to step-up in basis?

Somehow the thoughts in my head on this issue didn't make it through to the fingers. I agree with you that I'm unsure about the purpose behind changing the deed.

If it were simply a part of an overly simplified estate planning technique - a way of getting the home to the intended heir(s) - then I would think the whole property would get a step up in basis.

If, on the other hand, it was intended as bona fide transfer of a part interest, then the step up would not apply. Except, of course, that the giver passed away less than three years after the gift was made, so the gift gets included in the estate at date of death value (rather than at the value at the time of transfer) and the whole property again gets a step up.

A rather messy way of saying that I think the whole property will get a step up in basis no matter what the intent was behind the change in title to the property.

--Peter
_________________

Under most state law the titling of fractional interests represents a completed gift and the federal treatment follows. As well, outright transfers of real estate interests are generally not subject to the three year inclusion rule for estate tax purposes.

HJ

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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. 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.
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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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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.

_________________

Well and good but the problem lies in the life estate which is deemed to be retained by the donor. Gifting one-half of the property is not mutually exclusive with the federal estate tax result of full inclusion in the donor's estate. The mere right of undivided interest holders to occupy the property will not carry the day given the donor's continued enjoyment of the entire home up to and including the date of death.

Allbest
HJ
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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.

HJ --
Thanks for the correction. I was pretty sure I remembered the correct result, but the logic of how to get there eluded me.

To help educate me a bit more - and to take ol' Dobbin out for a bit of exercise ;-) - Does it make a difference how a title is held after a transfer? For example, is Tennancy in Common different from Joint Tennants with Right of Survivorship or from an undivided XX% interest? I'm only thinking of the impact on gifting. Thanks for any further clarification.

--Peter
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ptheland:

<<<<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.>>>>

"Thanks for the correction. I was pretty sure I remembered the correct result, but the logic of how to get there eluded me.

To help educate me a bit more - and to take ol' Dobbin out for a bit of exercise ;-) - Does it make a difference how a title is held after a transfer? For example, is Tennancy in Common different from Joint Tennants with Right of Survivorship or from an undivided XX% interest? I'm only thinking of the impact on gifting. Thanks for any further clarification."


I am not HJ, but see post 2480 on the inheritance board:

http://boards.fool.com/Message.asp?mid=13508135

where criser discusses this issue.

Hope this helps. Regards, JAFO
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Does it make a difference how a title is held after a transfer? For example, is Tennancy in Common different from Joint Tennants with Right of Survivorship or from an undivided XX% interest? I'm only thinking of the impact on gifting.

_______________

Property held as tenants-in-common (TIC) is controlled by testamentary documents. Property with survivorship rights (JTWROS) or between married people, tenancy-by-the-entireties, passes to the joint tenant by operation of law, outside of probate, and is unaffected by testamentary documents. For gifting purposes the TIC interest may be any fractional amount the donor wishes. I hope this helps but please email any additional concerns.

HJ

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