What is basis of home sold for $ 1 to child. Home sold for $ 220,000, can annual gift amount and expense of sale be written off proceeds? Thank you.

[itonewbie · Accepted solution]

Whether the son had lived in the house is irrelevant.  Agree it was a gift and your client along with the father's estate should check if a gift tax return was filed back then for the transfer.

It may well be that the father had erroneously recognized a loss or treated that as §267 disallowed loss but none of the should matter.

[grossie]

itonewbie, I never encountered a transaction like this.  I had a fear that my client would have a basis of $ 1.
Many thanks.

[TaxGuyBill]

I disagree, it is possible that the son not living in the house IS relavant.

What was the purpose of transferring it to the child?  Did the dad continue to have full use of the home until he died?  Was the home sold after the father died?

It might be an implied Life Estate situation, in which case the Basis would be the Fair Market Value on the Date of Death.

[grossie]

TGB,  As to purpose of the transfer, father was in poor health and thought he was doing the right thing for his son.  Father continued to have full use of the house up to the day he died.  The son sold the house shortly after father died.  Again, thanks.

[TaxGuyBill]

You (or a lawyer) need to determine if the intent was to GIFT the house to the son, or if the title transfer was merely for other purposes, but the INTENT was the father would have full control of the home for all purposes (including receiving the sales proceeds if it was sold before his death).

If it was a Gift, the Basis was the father's basis (plus any Basis adjustments after that).
If it was a Life Estate, the Basis is the Fair Market Value at the date of death.

The fact that the son never used the home and the father used the home until his death definitely weighs towards the Life Estate.

[itonewbie]

I read the question different and thought the OP had already determined that the sale did not include any clause for joint tenancy or for the father to retain any interest, which may cause the gift to be incomplete.  I'm not sure without doing further research whether the mere fact that the son permitted the father to remain in that home, without any right that is legally enforceable, would render that an implied life estate arrangement.

@TaxGuyBill But that is a good question you have raised and is worth considering.

[TaxGuyBill]

I don't know a lot about it, but from what I have read, it is surprising easy to establish the implied Life Estate with no documentation (based on facts-and-circumstances).

[grossie]

Thank you both, you answered my questions.  A gift it is, I know what the basis is, the Son will assume a bit of a capital gain tax, and the Father is resting in peace.

[itonewbie]

Thanks for an interesting discussion, @grossie.

[TaxGuyBill]

It was a gift to the child, so the Basis is the Basis of the giver (plus any adjustments after that).  Maybe plus $1 too. 

[grossie]

TaxGuyBill,  My information was incomplete. Sorry.  Father made transfer to son in 2001.  Father died in 2018.  Son sold house in late 2018.  Son has not lived in house for 20 years.  Thank you.

[wjgutcpa]

Basis is Dad's basis.

[sjrcpa]

Expenses of sale are deductible to reduce gain.