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Read moreHow are Capital Gains Treated in the Sale of a Life Estate?
- January 9th, 2024
Q
My mother died in 2011, leaving her house to me and my sisters. The property is a life estate for our stepdad. He moved out in 2023, and we sold it for $275,000. How do we treat the sale on our 2023 tax returns?
A
The capital gain from selling your life estate property will be the difference between the sale proceeds and the value of the property in 2011 when your mother passed away. If, for instance, the fair market value then was $200,000, and you received $275,000 after deducting any real estate brokerage commission, your gain would be $75,000.
Dividing the Proceeds Between the Life Tenant and the Remaindermen
Depending on the wording in the life estate, the proceeds may need to be split between you and your stepdad. The amount he would receive is based on his age.
More About Life Estates
Read our article that explains how a life estate works and contact an attorney near you (possibly the one your mother used to create the life estate) with any questions. The answer will help you follow your mother’s wishes and inform your tax advisor of the correct amount of capital gains.
Harry S. Margolis practices elder law, estate, and special needs planning in Boston and Wellesley, Massachusetts. He is the founder of ElderLawAnswers.com and answers consumer questions about estate planning issues here and at AskHarry.info.