Deeded in Life or Death

Today TaxMama hears from Mary in the TaxQuips Forum, who needs clarification. “My mother-in-law put her house in my husband’s name with a quitclaim Deed, which states it would be hers until her death; and he could not sell it as long as she was alive.  Now she has passed away and the house is only in his name.  Our question is, when we sell the house do we use the date of the quitclaim Deed or her date of death as the date of receiving the property?

 Dear Mary,

Please accept my condolences on the loss of your mother-in-law. She sounds like a smart, generous woman.

The version of the deed that she used to transfer the property to your husband was well-thought-out.  Because of the way it was written, not transferring full title until after her death, your husband gets the best of both worlds. He got ownership in the house while she was alive. But did not get clear title until after her death.

Since it was an imperfect gift, the advice from Christopher Barra, EA is exactly correct. Your husband does get the stepped up basis (fair market value) at the date of death.

Since your husband owned it on the date of the quitclaim deed, he may use that date as the “purchase” date when reporting the sale of the property.

Be sure to get an appraisal to formally record the value.

And remember, you can find answers to all kinds of questions about estate and gift taxes and other tax issues, free. Where? Where else? At www.TaxMama.com.

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6 thoughts on “Deeded in Life or Death

  1. Pingback: Ask TaxMama Issue 610 – Keep Your Fork

  2. TaxMama says:

    You’re welcome Mary.

    You will use the Fair Market Value on the date your mother in law died.

    (The date of quitclaim would be meaningless for valuation purposes.
    If the deed had not been written the way it was, the value you would have to use is your mother-in-law’s cost, plus any improvements. That would probably be a low number if she bought the house many years ago AND you probably couldn’t find those old documents anyway.)

    Hugs
    Eva

  3. Mary Loeck says:

    Thank you for a quick responce to my question. Just to clarify something, though, when we sell the house and have to fill out the capitol gains paperwork, we can use the value of the house from when the quitclaim was filed? Or the value of the house after her passing?

  4. TaxMama says:

    Hi Donna,

    That’s a good question.

    Since this property was gifted to the husband, it picks up the holding period of the donee (the person making the gift). In other words, this will be a long-term asset when he sells it.

    However, for estate tax purposes, hubby didn’t have clear title. The title had restrictions. So he doesn’t fully own it until the restrictions are eliminated – the date of Mom’s death.

    So for estate tax purposes, he only gets ownership on date of death – and gets the stepped-up basis as of that date. (Otherwise, his basis would be Mom’s basis, which might be very low, if she bought it 30 years ago.)

    That’s what so special about the way this deed was written.

    Hugs
    Eva

  5. Donna Tuke says:

    I am confused…..there is the FMV at the date of the quitclaim deed and a FMV [stepped up basis?] as of the date of the mother’s death. Which FMV/date is used in the event of a sale? The answer above confuses me, especially this statement:

    “Since your husband owned it on the date of the quitclaim deed, he may use that date as the “purchase” date when reporting the sale of the property.”

    thank you,
    DM Tuke

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