Sale of Real Estate The remainderman receives an adjustment (step-up) in basis to the amount the property is worth on the date of the life tenant’s death. This is usually quite beneficial to the remainderman who is selling the property.
Does a life estate get stepped-up basis?
With a Life Estate, if you die owning the property, then at the time of your death the property will be included in your estate and your heirs will receive a step up in basis. However, if you sell the property during your lifetime, then you will receive a portion of the proceeds based on your life interest.
How is the value of a life estate calculated?
The value of the parent’s life estate interest is calculated based on the age of the life estate holder and an interest rate mandated by the IRS. For example, in March 2017 the current value of a life estate held by a parent who is 80 years old is about 17.4% of the value of the property.
What is the seller’s basis for a life estate?
The basis rules change dramatically for the holder of a life estate interest if the rights to the income are sold without the remainder interest being sold as part of the same transaction. If the life interest is sold separately, the seller’s basis for tax purposes is $0. I.R.C. 1001 (e).
When to use cost basis for estate tax?
In that situation, the remainder holder does not benefit from the property until the life tenant dies. That complicates the income tax basis computation. Uniform basis. The general idea of uniform basis is that the cost basis of inherited property should equal the value used for estate tax purposes.
When does the remainder of a life estate benefit?
That’s fairly simple to understand when the decedent owns the entire property interest at death. However, that’s not the case with property that is held under a life estate/remainder arrangement. In that situation, the remainder holder does not benefit from the property until the life tenant dies. That complicates the income tax basis computation.
