Personal Exemption for Residence Sale

[Luvfall]

I have a client that is selling their primary residence.  They've just realized that they have a life estate on this home, with their 3 children owning approximately 48% of the home.  If the children quit claim their ownership to the parents, can the parents still qualify for the full $500,000 exemption on the gain of the sale?

[IRonMaN]

If they did that, how would they meet the ownership requirements of owning the home for 2 out of the last 5 years?  They only owned part of the home for that period.  Sounds like someone had a great plan to beat the system with the life estate, right up to the day they decided to sell the home.

[Jim-from-Ohio]

my thoughts..

1. three children "give back" their share, to taxpayer, right?

2. house has not sold as of right now

3. house sells after the gift back then, one 1099 issued to taxpayer

If that above is true I think married filing joint taxpayer quialties for full $ 500,000 exemption becauise it was taxpayer's house for at least two of five prevoius years

[IRonMaN]

Only part of the house was the taxpayers' for 2 out of 5 years.

[Jim-from-Ohio]

oh year.. has to had to both lived in and owned it..taxpayer only meets the lived in.. seen this before.. estate planning maybe but caused a tax bill.

[sjrcpa]

"They've just realized that they have a life estate on this home,"

Um, didn't they have to sign paperwork to accomplish this?