How to set the basis in inherited property from life estate?

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BlueEars
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How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 3:31 pm

My father passed away in 1983. He had remarried shortly before that. His will set up a life estate with his wife (my stepmother) as a life tenancy and myself as the remainderman. My stepmother just recently passed away at age 95. Now I have inherited the house and have title to it.

The house is in Northern California and has not been maintained at all well. It will not sell at a normal market value as there is substantial "waste". She was a hoarder and only recently was the property cleared of garbage because she lost her sight and needed 24/7 help. I had not even seen the house in the last 7 years when the house was temporarily left vacant and cleaned out of her floor to ceiling garbage. Yes, she was totally crazy.

A CPA has told me that the basis in this property is the value at the time of my father's death in 1983. Even with the poor condition of the property there is some considerable appreciation. That is the good news. The bad news is perhaps a large capital gain must be paid.

Some questions I have:
1) Is it correct that my basis is the 1983 appraisal value?
2) Is there any way to show the loss due to "waste" on my tax return?


I am looking for ideas that are solid. So no wild guesses please.

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Re: How to set the basis in inherited property from life estate?

Post by onthecusp » Sun Jul 14, 2019 3:59 pm

Keep any receipts, cancelled checks, or good notes regarding paying for the cleanup and apply them as a cost of selling the property.

Have you spent anything over the years on maintenance? If so the applicability to what is basically an investment property seems like another question for a CPA.

I don't know anything on if your current CPA is right or wrong. It sounds right but may depend on details of the life tenancy / remainderman relationship.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 4:09 pm

onthecusp wrote:
Sun Jul 14, 2019 3:59 pm
Keep any receipts, cancelled checks, or good notes regarding paying for the cleanup and apply them as a cost of selling the property.

Have you spent anything over the years on maintenance? If so the applicability to what is basically an investment property seems like another question for a CPA.

I don't know anything on if your current CPA is right or wrong. It sounds right but may depend on details of the life tenancy / remainderman relationship.
Thanks Onthecusp, I do not have a past CPA relationship established. I simply looked up and spoke briefly with a well regarded CPA as per Yelp reviews. I always have done my own taxes using TurboTax. It seems a very subjective judgement as to who is a good CPA for a situation like this one.

I did find this reference on the web: https://lawprofessors.typepad.com/agric ... asis-.html . One example given is this one which seems to go against any hope I have of getting a stepped up basis:
Boris leaves his entire estate to his son, Rocky, as a remainder holder. However, all income from the estate is payable to his wife, Natasha, until her death. The value of the property is $200,000 at the time of his death.

Natasha collects the income from the inherited property for 20 years. When she dies, the appreciated value of the property is $500,000.

When Natasha dies, Rocky becomes the sole owner of both the property and the future income. However, because Rocky's ownership of the property is based initially on his father's death, Rocky's basis is $200,000 - the value at the time his father died.

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Re: How to set the basis in inherited property from life estate?

Post by ChrisC » Sun Jul 14, 2019 4:14 pm

BlueEars wrote:
Sun Jul 14, 2019 3:31 pm
My father passed away in 1983. He had remarried shortly before that. His will set up a life estate with his wife (my stepmother) as a life tenancy and myself as the remainderman. My stepmother just recently passed away at age 95. Now I have inherited the house and have title to it.
* * *
Some questions I have:
1) Is it correct that my basis is the 1983 appraisal value?

I don't know about whether your accountant gave you correct advice; I'd consult an attorney competent in this area. From what you posted, the interest created by the will might be known as a life estate pur autre vie. Upon the passing of your stepmother, I would assume you get a stepped up basis in the house at the time of her death. I don't know the rationale for your accountant saying that your basis tracks the basis in the house at the time of your father's death, as you had no present ownership in the house at that time.

ETA: hmmmm, the example you gave from that blog, does suggest I could be wrong about my initial reaction above.
Last edited by ChrisC on Sun Jul 14, 2019 4:24 pm, edited 1 time in total.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 4:21 pm

ChrisC, maybe I should try to find a decent real estate attorney. I would imagine the fee for answering this question is not too high. My experience with attorneys and fees makes me want to only consult one if absolutely required.

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Re: How to set the basis in inherited property from life estate?

Post by ChrisC » Sun Jul 14, 2019 4:27 pm

BlueEars wrote:
Sun Jul 14, 2019 4:21 pm
ChrisC, maybe I should try to find a decent real estate attorney. I would imagine the fee for answering this question is not too high. My experience with attorneys and fees makes me want to only consult one if absolutely required.
Well, I think you need a tax attorney not a real estate one; this probably is a simple issue for those who practice in that area.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 4:49 pm

ChrisC wrote:
Sun Jul 14, 2019 4:27 pm
BlueEars wrote:
Sun Jul 14, 2019 4:21 pm
ChrisC, maybe I should try to find a decent real estate attorney. I would imagine the fee for answering this question is not too high. My experience with attorneys and fees makes me want to only consult one if absolutely required.
Well, I think you need a tax attorney not a real estate one; this probably is a simple issue for those who practice in that area.
OK, good thought. Thanks. Since the money is substantial I will do this.

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Re: How to set the basis in inherited property from life estate?

Post by 7eight9 » Sun Jul 14, 2019 4:55 pm

Your basis is the value at the time of your father's death. The answer can be found in 26 CFR § 1.1014-4 - Uniformity of basis; adjustment to basis.

(1) The basis of property acquired from a decedent, as determined under section 1014(a) or section 1022, is uniform in the hands of every person having possession or enjoyment of the property at any time under the will or other instrument or under the laws of descent and distribution.
https://www.law.cornell.edu/cfr/text/26/1.1014-4
I guess it all could be much worse. | They could be warming up my hearse.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 4:56 pm

If you could have sold the house while your stepmother was alive, then it is almost but certain that you can only claim its value at your father's death as your basis.

Things become a little different had you been barred from disposing of the property. In such case there could be hope that your basis might be at value at your stepmother's death, when you indeed acquired control over the property. Key point being that you did not have "possession, nor enjoyment" until then. Who was billed for property taxes, for instance ?

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 5:03 pm

Thesaints wrote:
Sun Jul 14, 2019 4:56 pm
If you could have sold the house while your stepmother was alive, then it is almost but certain that you can only claim its value at your father's death as your basis.

Things become a little different had you been barred from disposing of the property. In such case there could be hope that your basis might be at value at your stepmother's death, when you indeed acquired control over the property. Key point being that you did not have "possession, nor enjoyment" until then. Who was billed for property taxes, for instance ?
I could not sell the property while she was alive. The best I could have done was to claim wastage and take her to court. I didn't think that was a productive route and went on with life.

She paid the property taxes which were pretty low. Since the bill went to the property address I never saw it. But her name was listed as owner on the property in the county records (I think) and I had to call the county years ago to have them put me on their records in case she did not pay the RE taxes.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 5:09 pm

BlueEars wrote:
Sun Jul 14, 2019 5:03 pm
She paid the property taxes which were pretty low. Since the bill went to the property address I never saw it. But her name was listed as owner on the property in the county records (I think) and I had to call the county years ago to have them put me on their records in case she did not pay the RE taxes.
Put you on the record as what ? Whose name was on the deed after your father's death ? I imagine there was no Federal estate tax involved back then, right ?

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 5:09 pm

7eight9 wrote:
Sun Jul 14, 2019 4:55 pm
Your basis is the value at the time of your father's death. The answer can be found in 26 CFR § 1.1014-4 - Uniformity of basis; adjustment to basis.

(1) The basis of property acquired from a decedent, as determined under section 1014(a) or section 1022, is uniform in the hands of every person having possession or enjoyment of the property at any time under the will or other instrument or under the laws of descent and distribution.
https://www.law.cornell.edu/cfr/text/26/1.1014-4
I don't think I'm qualified to read that and interpret it correctly. Did I really have "possssion" if I could not sell it? I certainly had no "enjoyment" of the property.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 5:12 pm

Thesaints wrote:
Sun Jul 14, 2019 5:09 pm
BlueEars wrote:
Sun Jul 14, 2019 5:03 pm
She paid the property taxes which were pretty low. Since the bill went to the property address I never saw it. But her name was listed as owner on the property in the county records (I think) and I had to call the county years ago to have them put me on their records in case she did not pay the RE taxes.
Put you on the record as what ? Whose name was on the deed after your father's death ? I imagine there was no Federal estate tax involved back then, right ?
She was the life tenant and I was the remainderman. The will was filed with the county. I'm not sure this answers your question.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 5:12 pm

BlueEars wrote:
Sun Jul 14, 2019 5:03 pm
I could not sell the property while she was alive.
This part, if determined according to law, would suggest you did not own the house: you couldn't use it and you couldn't sell it.
The best I could have done was to claim wastage and take her to court.
This part, instead, suggests the opposite. Had she destroyed the house, she would have had to compensate you. It could be argued, though, that she would have compensated you for the loss of a future ownership right.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 5:14 pm

BlueEars wrote:
Sun Jul 14, 2019 5:12 pm
She was the life tenant and I was the remainderman. The will was filed with the county. I'm not sure this answers your question.
The remainderman has generally no possession, but only a future right.
I mean was the deed (not the will) ever transferred to your name ? That would imply possession. In fact, it would define it.

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Re: How to set the basis in inherited property from life estate?

Post by Gill » Sun Jul 14, 2019 5:25 pm

Yes, the advice given you on the basis is correct. You will have a gain or loss using this basis against the sale proceeds.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 5:43 pm

Gill wrote:
Sun Jul 14, 2019 5:25 pm
Yes, the advice given you on the basis is correct. You will have a gain or loss using this basis against the sale proceeds.
Gill
Gill, what experience do you have with this kind of issue?

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 5:44 pm

Thesaints wrote:
Sun Jul 14, 2019 5:14 pm
BlueEars wrote:
Sun Jul 14, 2019 5:12 pm
She was the life tenant and I was the remainderman. The will was filed with the county. I'm not sure this answers your question.
The remainderman has generally no possession, but only a future right.
I mean was the deed (not the will) ever transferred to your name ? That would imply possession. In fact, it would define it.
In 2008 our attorney put this property into our trust. Not sure if that involves the deed.

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Re: How to set the basis in inherited property from life estate?

Post by bsteiner » Sun Jul 14, 2019 5:46 pm

Did his executors make a QTIP election for the property on his estate tax return?

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 6:01 pm

bsteiner wrote:
Sun Jul 14, 2019 5:46 pm
Did his executors make a QTIP election for the property on his estate tax return?
No idea on this one.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 6:06 pm

BlueEars wrote:
Sun Jul 14, 2019 5:44 pm
In 2008 our attorney put this property into our trust. Not sure if that involves the deed.
Trust to your benefit ? The issue is still whether it was the property itself, or a future property right, however.
If the State taxed your stepmother it is pretty evident, IMO, that you were not the owner.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 6:28 pm

Thesaints wrote:
Sun Jul 14, 2019 6:06 pm
BlueEars wrote:
Sun Jul 14, 2019 5:44 pm
In 2008 our attorney put this property into our trust. Not sure if that involves the deed.
Trust to your benefit ? The issue is still whether it was the property itself, or a future property right, however.
If the State taxed your stepmother it is pretty evident, IMO, that you were not the owner.
That would be county taxes in California.

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Re: How to set the basis in inherited property from life estate?

Post by Gill » Sun Jul 14, 2019 6:41 pm

BlueEars wrote:
Sun Jul 14, 2019 5:43 pm

Gill, what experience do you have with this kind of issue?
Lots. Attorney, CPA, Trust Executive for 35 years with major trust institutions.😀😀😀😀😀( Couldn’t resist...) I defer to bsteiner, however, for a definitive opinion.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 6:57 pm

Gill wrote:
Sun Jul 14, 2019 6:41 pm
BlueEars wrote:
Sun Jul 14, 2019 5:43 pm

Gill, what experience do you have with this kind of issue?
Lots. Attorney, CPA, Trust Executive for 35 years with major trust institutions.😀😀😀😀😀( Couldn’t resist...) I defer to bsteiner, however, for a definitive opinion.
Gill
Impressive credentials, thanks.

Now if you could only help me get a stepped up basis. :happy

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 7:19 pm

BlueEars wrote:
Sun Jul 14, 2019 6:28 pm
That would be county taxes in California.
Regardless, whose name is the deed in ? County will tax the owner of record. If the deed was in your name, or in a trust to your benefit, I'd say there is no hope.
Otherwise, what's the IRS basis in saying you were the owner ?

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Re: How to set the basis in inherited property from life estate?

Post by CAsage » Sun Jul 14, 2019 7:27 pm

I'm pretty sure you cannot deduct or get any credit from "waste" or missed appreciation from what you wish you could have made if someone had taken better care of the property (question 2). There seems to be lots of discussion on this site that you can't deduct any hypothetical losses, or subtract income you never got, for example. See this link for basis, as well:
https://www.wealthmanagement.com/estate ... -explained
Last edited by CAsage on Sun Jul 14, 2019 7:29 pm, edited 1 time in total.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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Re: How to set the basis in inherited property from life estate?

Post by Gill » Sun Jul 14, 2019 7:29 pm

Thesaints wrote:
Sun Jul 14, 2019 7:19 pm
BlueEars wrote:
Sun Jul 14, 2019 6:28 pm
That would be county taxes in California.
Regardless, whose name is the deed in ? County will tax the owner of record. If the deed was in your name, or in a trust to your benefit, I'd say there is no hope.
Otherwise, what's the IRS basis in saying you were the owner ?
The property was in a legal life estate with remainder to the OP and therefore it passed directly to him by operation of law. A death certificate of the life tenant would trigger that.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: How to set the basis in inherited property from life estate?

Post by Gill » Sun Jul 14, 2019 7:30 pm

CAsage wrote:
Sun Jul 14, 2019 7:27 pm
I'm pretty sure you cannot deduct or get any credit from "waste" or missed appreciation from what you wish you could have made if someone had taken better care of the property (question 2). There seems to be lots of discussion on this site that you can't deduct any hypothetical losses, or subtract income you never got, for example. See this link for basis, as well:
https://www.wealthmanagement.com/estate ... -explained
I believe the only remedy would be to sue the estate of the life tenant.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 7:36 pm

Gill wrote:
Sun Jul 14, 2019 7:30 pm
CAsage wrote:
Sun Jul 14, 2019 7:27 pm
I'm pretty sure you cannot deduct or get any credit from "waste" or missed appreciation from what you wish you could have made if someone had taken better care of the property (question 2). There seems to be lots of discussion on this site that you can't deduct any hypothetical losses, or subtract income you never got, for example. See this link for basis, as well:
https://www.wealthmanagement.com/estate ... -explained
I believe the only remedy would be to sue the estate of the life tenant.
Gill
I don't think she had any appreciable money at the end of her life.

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Re: How to set the basis in inherited property from life estate?

Post by Thesaints » Sun Jul 14, 2019 7:41 pm

Gill wrote:
Sun Jul 14, 2019 7:29 pm
Thesaints wrote:
Sun Jul 14, 2019 7:19 pm
BlueEars wrote:
Sun Jul 14, 2019 6:28 pm
That would be county taxes in California.
Regardless, whose name is the deed in ? County will tax the owner of record. If the deed was in your name, or in a trust to your benefit, I'd say there is no hope.
Otherwise, what's the IRS basis in saying you were the owner ?
The property was in a legal life estate with remainder to the OP and therefore it passed directly to him by operation of law. A death certificate of the life tenant would trigger that.
Gill
Yes. So why is not the basis the property value at the life tenant's death ?

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Re: How to set the basis in inherited property from life estate?

Post by Gill » Sun Jul 14, 2019 7:46 pm

Thesaints wrote:
Sun Jul 14, 2019 7:41 pm
Gill wrote:
Sun Jul 14, 2019 7:29 pm
Thesaints wrote:
Sun Jul 14, 2019 7:19 pm
BlueEars wrote:
Sun Jul 14, 2019 6:28 pm
That would be county taxes in California.
Regardless, whose name is the deed in ? County will tax the owner of record. If the deed was in your name, or in a trust to your benefit, I'd say there is no hope.
Otherwise, what's the IRS basis in saying you were the owner ?
The property was in a legal life estate with remainder to the OP and therefore it passed directly to him by operation of law. A death certificate of the life tenant would trigger that.
Gill
Yes. So why is not the basis the property value at the life tenant's death ?
To get a new basis the property must be includable in an estate. This was not includable in her estate as it was only a life interest unless there was a QTIP election which doesn’t seem likely.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: How to set the basis in inherited property from life estate?

Post by bsteiner » Sun Jul 14, 2019 8:24 pm

BlueEars wrote:
Sun Jul 14, 2019 5:44 pm
...
In 2008 our attorney put this property into our trust. Not sure if that involves the deed.
That wouldn't have been valid. Your attorney didn't own the property so he/she couldn't transfer it. If your remainder interest was vested (so that the property would have been an asset of your estate upon your stepmother's death if you had predeceased her), which is possible, then you and your stepmother together could have transferred the property. If your remainder interest was contingent (so that the property would have passed to someone else upon your stepmother's death if you had predeceased her), which is more likely, then, depending on the terms of the remainder interest, either you, that person and your mother together, or no class of persons, could have transferred the property.
BlueEars wrote:
Sun Jul 14, 2019 6:01 pm
bsteiner wrote:
Sun Jul 14, 2019 5:46 pm
Did his executors make a QTIP election for the property on his estate tax return?
No idea on this one.
You'll need to find out, since whether you get a basis step-up depends on it. You could ask your father's executors, or the attorney who handled your father's estate (or his/her the law firm). Or you might be able to get a copy of his estate tax return from the IRS or from California. If necessary, you could become successor executor. Or your stepmother's executors might be able to get a copy from the IRS.
Gill wrote:
Sun Jul 14, 2019 6:41 pm
BlueEars wrote:
Sun Jul 14, 2019 5:43 pm

Gill, what experience do you have with this kind of issue?
Lots. Attorney, CPA, Trust Executive for 35 years with major trust institutions.😀😀😀😀😀( Couldn’t resist...) I defer to bsteiner, however, for a definitive opinion.
Thanks, but you don't need to defer to anyone on this.
Gill wrote:
Sun Jul 14, 2019 7:46 pm
...
To get a new basis the property must be includable in an estate. This was not includable in her estate as it was only a life interest unless there was a QTIP election which doesn’t seem likely.
We don't know. But it's possible since the estate tax exclusion amount was only $275,000 in 1983. Do you have a sense of the size of his estate and who got what? Might there be any information in the probate court file?

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 8:56 pm

bsteiner wrote:
Sun Jul 14, 2019 8:24 pm
BlueEars wrote:
Sun Jul 14, 2019 5:44 pm
...
In 2008 our attorney put this property into our trust. Not sure if that involves the deed.
That wouldn't have been valid. Your attorney didn't own the property so he/she couldn't transfer it. If your remainder interest was vested (so that the property would have been an asset of your estate upon your stepmother's death if you had predeceased her), which is possible, then you and your stepmother together could have transferred the property. If your remainder interest was contingent (so that the property would have passed to someone else upon your stepmother's death if you had predeceased her), which is more likely, then, depending on the terms of the remainder interest, either you, that person and your mother together, or no class of persons, could have transferred the property.
All I know is that the attorney suggested this so that if I am deceased our heirs will be able carry on with the inheritance under our trust terms. The county has our Trust as current owner of the property which event I think occurred right after my stepmother died. My stepmother and I were co-executors of my father's will. There is nobody else involved in this.
BlueEars wrote:
Sun Jul 14, 2019 6:01 pm
bsteiner wrote:
Sun Jul 14, 2019 5:46 pm
Did his executors make a QTIP election for the property on his estate tax return?
No idea on this one.
You'll need to find out, since whether you get a basis step-up depends on it. You could ask your father's executors, or the attorney who handled your father's estate (or his/her the law firm). Or you might be able to get a copy of his estate tax return from the IRS or from California. If necessary, you could become successor executor. Or your stepmother's executors might be able to get a copy from the IRS.
The other executor (stepmother) is deceased and so is the original attorney who drew up the will. His son is an attorney and when I contacted him a few years back he, for some unaccountable reason, got really angry over the phone before simmering down and answering the question. Maybe a drinker and probably unreliable. The only paper work I was made aware of was the "order settling first and final account" in 1985.

...
bsteiner wrote:
Gill wrote:
Sun Jul 14, 2019 7:46 pm
...
To get a new basis the property must be includable in an estate. This was not includable in her estate as it was only a life interest unless there was a QTIP election which doesn’t seem likely.
We don't know. But it's possible since the estate tax exclusion amount was only $275,000 in 1983. Do you have a sense of the size of his estate and who got what? Might there be any information in the probate court file?
The estate is very small consisting of little more then the house. The house was appraised at $100,000 back in 1983. In it's current condition it may be $370,000 now. I am the only living person legally concerned with this estate. My stepmother had very little at the end other then a small life insurance policy which went to a blood relative of hers.

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Re: How to set the basis in inherited property from life estate?

Post by bsteiner » Sun Jul 14, 2019 9:19 pm

BlueEars wrote:
Sun Jul 14, 2019 8:56 pm
...
All I know is that the attorney suggested this so that if I am deceased our heirs will be able carry on with the inheritance under our trust terms. The county has our Trust as current owner of the property which event I think occurred right after my stepmother died. My stepmother and I were co-executors of my father's will. There is nobody else involved in this.
...
The only paper work I was made aware of was the "order settling first and final account" in 1985.
...
The estate is very small consisting of little more then the house. The house was appraised at $100,000 back in 1983. In it's current condition it may be $370,000 now. I am the only living person legally concerned with this estate. My stepmother had very little at the end other then a small life insurance policy which went to a blood relative of hers.
Perhaps your remainder interest was vested so you could transfer it. Even if it wasn't vested, perhaps the transfer became effective upon your stepmother's death as a result of your surviving her.

Since the estate tax exclusion amount was $275,000 in 1983, if your father's estate was only about $100,000 then you and your stepmother wouldn't have filed an estate tax return. (Since you were an executor you would know if you did.) Since you're the surviving executor you could file one now and make a QTIP election. While a QTIP election, once made, can't be revoked after the due date of the return, you can make a QTIP election on a late return. If there was a court accounting you can easily get the information as to your father's assets (except perhaps for the life insurance policy, but you might be able to find out some information about it from the beneficiary).

Under Revenue Procedure 2001-38, http://www.legalbitstream.com/scripts/i ... f257/2/doc, it wasn't clear whether you could make a QTIP election if it wasn't necessary to reduce the estate tax. However, Revenue Procedure 2016-49 now allows this: https://www.irs.gov/pub/irs-drop/rp-16-49.pdf.

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BlueEars
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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 9:28 pm

. deleted
Last edited by BlueEars on Mon Jul 15, 2019 11:40 am, edited 1 time in total.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Sun Jul 14, 2019 9:29 pm

bsteiner wrote:
Sun Jul 14, 2019 9:19 pm
BlueEars wrote:
Sun Jul 14, 2019 8:56 pm
...
All I know is that the attorney suggested this so that if I am deceased our heirs will be able carry on with the inheritance under our trust terms. The county has our Trust as current owner of the property which event I think occurred right after my stepmother died. My stepmother and I were co-executors of my father's will. There is nobody else involved in this.
...
The only paper work I was made aware of was the "order settling first and final account" in 1985.
...
The estate is very small consisting of little more then the house. The house was appraised at $100,000 back in 1983. In it's current condition it may be $370,000 now. I am the only living person legally concerned with this estate. My stepmother had very little at the end other then a small life insurance policy which went to a blood relative of hers.
Perhaps your remainder interest was vested so you could transfer it. Even if it wasn't vested, perhaps the transfer became effective upon your stepmother's death as a result of your surviving her.

Since the estate tax exclusion amount was $275,000 in 1983, if your father's estate was only about $100,000 then you and your stepmother wouldn't have filed an estate tax return. (Since you were an executor you would know if you did.) Since you're the surviving executor you could file one now and make a QTIP election. While a QTIP election, once made, can't be revoked after the due date of the return, you can make a QTIP election on a late return. If there was a court accounting you can easily get the information as to your father's assets (except perhaps for the life insurance policy, but you might be able to find out some information about it from the beneficiary).

Under Revenue Procedure 2001-38, http://www.legalbitstream.com/scripts/i ... f257/2/doc, it wasn't clear whether you could make a QTIP election if it wasn't necessary to reduce the estate tax. However, Revenue Procedure 2016-49 now allows this: https://www.irs.gov/pub/irs-drop/rp-16-49.pdf.
Would you suggest finding a knowledgeable tax attorney to pursue something like this? Any suggestion on finding or interviewing an attorney?

EDIT: Thanks very much for your thoughts.
Last edited by BlueEars on Mon Jul 15, 2019 11:43 am, edited 1 time in total.

trueblueky
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Re: How to set the basis in inherited property from life estate?

Post by trueblueky » Mon Jul 15, 2019 9:48 am

BlueEars wrote:
Sun Jul 14, 2019 3:31 pm
My father passed away in 1983. He had remarried shortly before that. His will set up a life estate with his wife (my stepmother) as a life tenancy and myself as the remainderman. My stepmother just recently passed away at age 95. Now I have inherited the house and have title to it.

The house is in Northern California and has not been maintained at all well. It will not sell at a normal market value as there is substantial "waste". She was a hoarder and only recently was the property cleared of garbage because she lost her sight and needed 24/7 help. I had not even seen the house in the last 7 years when the house was temporarily left vacant and cleaned out of her floor to ceiling garbage. Yes, she was totally crazy.

A CPA has told me that the basis in this property is the value at the time of my father's death in 1983. Even with the poor condition of the property there is some considerable appreciation. That is the good news. The bad news is perhaps a large capital gain must be paid.

Some questions I have:
1) Is it correct that my basis is the 1983 appraisal value?
2) Is there any way to show the loss due to "waste" on my tax return?


I am looking for ideas that are solid. So no wild guesses please.
You have Gill and bsteiner, so as good advice as anywhere.

Have there been any capital improvements since 1983, e.g., new roof or new air conditioner? Those should add to the basis.

See these IRS pubs: https://www.irs.gov/pub/irs-pdf/p523.pdf Selling Your Home and https://www.irs.gov/pub/irs-pdf/p551.pdf Basis of Assets.

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Re: How to set the basis in inherited property from life estate?

Post by BlueEars » Mon Jul 15, 2019 9:53 am

There was some leaks and either a patch or new roof but l don’t have any records of these. Also a new water heater which I do have some proof for. So thanks, that will help a bit.

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