From: Penfield, New York

Dear TaxMama,

My parents bought a house in 1952, mortagage paid off in 1983. 

My Dad passed away in 1995 and for estate planning purposes the house was gifted to my son (her grandson) in  1996 with life use.  The deed was transferred and Form 709 (gift tax) was filed by my mother. 

In 2004 the house was sold by my mother.

For convenience, since her grandson lives out of town, and to make the sale easier, the house was re-gifted and deeded back to my mother. 

The sale price was 63,500. 

My mother has lived in house for 52 years, responsible for all taxes, improvements, utilities, and insurance.

It is the only house she has ever lived in or owned.  Since she maintained life use, is she elgible for the home exclusion? 

Roger

 

Dear Roger,

You guys SO messed this up. With a value this small, whose idea was it to so urgently move it out of her estate? There was no reason to do that! If this is the biggest asset in her estate, it isn't large enough to tax.

Did anyone discuss any of these moves with a tax professional? Or did you just read the instructions on the Gift Tax form and think you were being so clever?

For Mom to get the personal residence exclusion, she'd have to both live in it and own it for at least two of the last five years.

She qualifies on the one hand, but not on the ownership side.

The Good News:

At least, one thing is in her favor. The tax basis of the house is the fair market value at the date of your dad's death.  So what was the house worth at that time?

Add the cost of any improvements she made since 1995. Add all the selling costs and commissions. That will be her gain. It probably won't be much. But, at least, it will  be long term, since the holding period will that of the person who gave her the gift.

Roger, you guys really need to get advice BEFORE doing things, not afterwards. Please, in the future...

Take better care of each other, OK?

Best Wishes,
Eva Rosenberg, MBA, EA