All Forum Posts by: James Sykes

 Thank you!  Appreciate your reply.  I will definitely follow up here. This is a complex issue and I know the community would benefit from learning about our decisions.

Zachary,

Thank you for the detailed response.  I will use some round numbers to resummarize what I am hearing.  The property is roughly valued at $1M based on the realtors estimate.

2022 transfer to LE deed.  My dad retained a life estate share of the property with both sons having equally divided remaindership.  Roughly the following:

LE share (dad) at 40% and each son having 30% each.  The LE deed calculations stated property tax value at roughly $300,000 total (all shares).  My dad essentially had $120,000 and each son had $90,000.  No appraisal was performed.  The values here were state required calculations included by the attorney to show an example of value share split.

2024 events:

Dad has aged so his LE value is close to 30% and each son had 35%.  I will assume the total cost basis for the property is $500,000.  He built his own home, so there is no ‘sale’ value here.  When it was purchased in 1995, it was raw land.  Numerous improvements have made over the years.

Dad wants sell the property this year, so I will assume it sells for $1M.

Dad’s LE share would be $300,000.  He can use cost basis here - 30% of $500,000 would be $150,000 cost basis.  Capital gains would be 0 because he has not hit the threshold for gains on a primary home sale.

Dad’s remaindership share (portion that was my brothers) is 35% and carries a $0 cost basis.  There was no financial transaction from brother’s ownership to my dad.  My dad would be responsible for capital gains on the full amount.  Additionally, my brother would responsible for claiming gift tax on the $350,000.

My remaindership share is 35% and I will need to claim capital gains on the difference of carryover cost basis.  Is my cost basis same as my dad’s ($500,000) or would it be based on the value in 2022?  Since there is no appraisal, I assume it’s development costs and same as my dad.

Some additional questions….

Does my dad have to claim gift tax for any portions of this transaction?  Like the gift he made to me for remaindership share.

I also assume there are some unknowns with state, county, or city taxes for transfers or sales.  I have not dug into that yet.

With the figures used here, would gift tax apply to this transaction for my brother?

Thanks again for your time answering these questions.  It has been super helpful understanding my assumptions.  I will seek some professional help in Tennessee.  Hopefully I can someone in this community who specializes in real estate transactions.

Hey Biggerpockets Community!  I have a tricky question that I cannot find any good answers for on the internet.  Big fan of everything you give to our community.  Here we go….

So my dad signed over his estate (house and land) to both his sons (me and Travis) through a life estate deed in 2022.  The intention of this instrument was to avoid the probate courts and to provide for step-up basis when he passes.  My question is not related probate or step-up because he has not decided to sell the property.

In 2022 my dad held a life estate interest in the property at the same time providing a remaindership to both his sons.

In 2024 my brother Travis gave his share back to my dad through a quit claim deed.  Now my dad owns his life estate portion plus the remaindership portion from my brother.  I still own 1/2 of the remaindership portion.

Here are the questions….

For my portion, do I retain the carryover basis from value of property gifted to me from my dad?

If yes, then I assume my brother would have similar basis if he still retained ownership via remaindership.  But since my brother gave back his portion, does my brother need to claim gift tax for transfer of property to my dad.

Does my dad’s cost basis for value of estate apply only to the life estate portion?  I assume this because it is the only straight line value he retained in this event.

My dad now has his son’s (Travis’s share) remaindership given back to him.  I assume this share has a $0 cost basis.

I am trying to figure out the tax implications of these events.  What started out as good intentions, has now tuned into an assumed mess of a tax situation….

Your help is greatly appreciated!  I am also open to phone calls or DMs regarding this.  I am desperately trying to understand and advise my dad on repercussions about this sale.

Best, 

James