Does the son enjoy a stepped-up basis on the property? (10 points)?

Question

In an effort to avoid probate at her death, Frank's mom, Sylvia, conveyed her interest in her Florida condo to her son 12 years ago through a quit claim deed,  and retained a life estate. She passed away last month.

Does Frank get a stepped-up basis to the date-of-death value or, does he "inherit" his Mom's original basis because it was a gift? Please explain your answer. Thanks!

Anonymous · Accepted Answer

The general rule is that when there is a gift, the basis for the son is the basis the mother had and it would not change when the mother dies.  However, since the mother owned a life estate, then there should be an adjustment of basis to the fair market value of the property at the time of the mother's death (in other words, there is a step-up/step-down in basis when the mother dies).  This info is general in nature and not to be construed as legal or tax advice.

Bobbie · Answer

A gift 12 years ago RIGHT when the property was transferred to his name at that time with the quit claim deed RIGHT.
Property Received as a Gift
To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it. 

http://www.irs.gov/publications/p551/ar02.html#en_US_2010_publink1000257001

Hope that you find the above enclosed information useful. 07/08/2012

Cathi K · Answer

Since he actually owned it at 12 that is the basis.

Judy · Answer

No step up value on a gift, just inheritance, and he didn't inherit it.  So he retains her  basis.

tro · Answer

she transferred the condo to her son 12 yrs ago, she no longer had any interest in it
his basis is at the time it became his possession

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Does the son enjoy a stepped-up basis on the property? (10 points)?

5 Answers