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Life use of real property


schirallicpa

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The document reads "life use of the premises" and then the property transfers at the date the premises is no longer used.  Is the basis calculated at time of initial transfer in 2005, or at the time the premises is given up in 2022?  The owner has not passed yet and is in the nursing home but the children want to sell the house.

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If this is. Lifetime estate, the heirs get a stepped up basis after the lifetime tenet passes away. A lot depends on how this was written up. Ask to see the documents. You state the language says  the property transfers when it is no longer used. Need to research this further

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The key question here is whether the owner has "power of appointment," meaning she can change the terms of the agreement.  If so, she didn't really make a gift of a current interest so the proceeds of the sale go to her.  If she had no power of appointment, there should have been a gift tax return filed.  Based on her age at the date of the gift, use IRS tables to determine the value of her interest and the remainder interest.  I'm not sure, but I think you have to calculate the value of what's left of her interest when the house is sold using the same tables and the ORIGINAL value (I'm sure of that part) and her new age.  The transferees essentially have to buy out her remaining interest by paying her for it.  She may be eligible for the 121 exclusion but anything they receive above their basis is subject to cap gains tax.

Answer to your specific question:  She is gifting a home, so basis is always her basis just like any other gift.  If she held power of appointment, she gets the proceeds and the 121 exclusion.  If not, she gets her piece and the transferees have cap gains on their piece. 

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