Selling mom’s home to pay for assisted living and health insurances expenses. What are the tax pitfalls?

Jean S: Selling mom’s home to pay for assisted living and health insurances expenses. What are the tax pitfalls?
Her home has been in children’s names (5 of us) for over 6 years.
When we sell, is there a trust we can put the money into for mom’s use – without losing a lot of the sale money to taxes?

Answers and Views:

Answer by Mathew
You have poses a very complex question for which you really need professional advise. The pitfalls are plentifully and dangerous. First of all it would appear that 5 people that did not live in the house are about to sell a house that they acquired 6 years ago. If their is gain during that period it may be difficult to cover that gain and avoid capital gain tax for each of the 5. I could go on for pages but you really do need to sit down with some one who is experienced and explain all of the circumstances and goals.

Answer by Kate M
you need a tax atttorney to answer this properly.

Answer by CPA/PFS
Plenty of pitfalls.

First, it does not qualify for the $ 250,000 exclusion of gain because it is not a personal residence to the 5 of you.

Second, you probably acquired it by gift from your mom. If so, your basis would be her basis. Basically, her purchase price plus improvements. This might be quite low.

If you had your mother gift the home to you 6 years ago, that may not have been your wisest tax move.

Third, you will likely encounter a capital gain on the sale, assuming you can get all 5 of you to agree to sell it. Don’t be surprised if one of your siblings views this issue differently than you. It happens. I doubt you formed and filed as a partnership … you probably hold title as tenants in common … and if so a sibling can effectively make selling the house extremely difficult and might require court action.

Once you have the money, a new issue arises. Getting the funds to your mother. If you gift the money to her, you likely could gift $ 60,000 ($ 12,000 * 5) annually. You could increase that amount by having your spouses gift to her also.

There is one additional gift option. Amount paid directly to health care providers for services provided to her are unlimited and not considered a taxable gift.

Bottom line … do not rely on a public forum for more than general information. You should consult with a tax professional that is privy to all of your facts and goals.

Answer by PepsiLime
You mom may have put the home in your names, but who is the legal owner on the deed? If it is the 5 of you, then you would have capital gains if you sold the house. The good thing is that capital gains are taxed at a maximum rate of 15%, and 5% if the person would be in the 10 or 15% bracket without the gain (for 2008 the 5% tax will be replaced by a 0% tax for those in the 10 or 15% bracket). The capital gain would be the difference between what the house was sold for, and what it was bought for by your mom, plus all the improvements over the years. Also, if the house was originally owned by your mom & dad, and your dad passed away while still owning his half (or all of the house), there would be what’s called a “step-up in basis” for his half or 100% (if he was the sole owner prior to his death). The step-up would be what the house was worth on the date of his death rather than what the house was bought for plus improvements. Any improvements done to the house after his death would be added to the basis of the house to determine the cost basis. If the house is still legally owned by your mother, then as long as she had lived in the house for 2 out of the last 5 years, the house could be sold, and any capital gains up to $ 250,000 would not be taxed. Don’t know your mom’s exact situation with the house, but those the various possibilities. Best bet is to talk to a tax attorney, or local CPA in your area about what is best.