Client and her sister each own 1/2 interest (as tenants in common) in their mothers home which was transferred via gift with a life estate. My client plans wants to sell the house prior to their Mother’s death. My understanding if it is sold prior to death, the basis is the FMV from the date of transfer and the capital gains after the sale are split among the three listed on the deed. Can someone confirm this for me?
Also, if a Remainderman dies before the life estate holder, does her estate get a step-up in basis for her percentage of interest?
The basis for figuring a gain is the mom’s adjusted basis at the time of the gift plus or minus any adjustments while the sisters held the property. The basis for calculating a loss is the FMV at the time the gift was received plus or minus any adjustments while the sisters held the property. If the property is sold prior to mom’s death she is entitled to a share of the gain.
If a remainderman dies before the life estate holder, the property does not receive a basis step-up however the remainderman’s heirs will receive a basis adjustment for her percentage of interest.