QUESTION
Is it possible to sell a real property with a Life estate deed without tax conseques?
Asked on Jan 26th, 2017 on Real Estate - New York
More details to this question:
I have a complicated situation. I'm looking to sell a two family house. The deed is a life estate deed with my parents as the life tenants and me and my brother as the remainderman. Currently only I live in the house and I rent out the other unit. There would be no issues with me getting everyone on the deed to sign off on a sale, we're a close family and my parent trust I will not run off and leave them high and dry. The issue is it would be a huge tax hit as the profit is over 700k. The only way I see me avoiding taxes is if I wait until my parents death, at that point the cost basis would be steped up to the FMV. I do know about the 121 tax exemption and 1031 trade for like kind property but after much research it sounds like I can't use these on a life estate Since I would only be a partial owner. Additionally another issue is we do not want this sale to end up affecting our parents Medicaid which is the main reason we did a life estate deed. Thanks
2 ANSWERS
1 Award
The sale is not the complicated part. Just list it and sell it. It will take awhile to find a buyer anyway. All of the interested parties will need to sign a deed. The issue is how to distribute the proceeds in a way that no gains tax is assessed, and that your parents wind up with no assets to protect from Medicaid clawbacks. There is definitively a way to avoid the tax. The issue is the structure will turn on what other assets you have, what other assets they have, and how expenses and improvements have been handled over time. A lawyer can work this out. BTW, it is too late now, but the life estate structure was not the best way to deal with these issues. A trust would have been much better.
Answered on Jan 29th, 2017 at 6:15 AM
Civil Rights Law Attorney serving Rockville Centre, NY
Partner at
Lori Nevias, Attorney at Law
1 Award
This is not the answer you're looking for, but it's the most honest answer you'll get. This is NOT a question for an online forum. You're asking a very complex question with tax, legal and Medicaid ramifications- and a valuable property at stake. And you are already well-versed in some of your options. Much more information is needed to properly answer this- in an in-person consultation with a reputable attorney who is experienced in high-end real estate transactions, real estate tax law and Medicaid asset protection. You will likely need two attorneys. Beware of anyone who gives you a shoot-from-the-hip answer. (Disclaimer: I am not either of the attorneys you need- I am not fishing for this business.)
Answered on Jan 28th, 2017 at 11:53 AM