gift, life estate, 1031 exchange

Dear Mr. Hickox:  In 1992 my Aunt gifted her home to me retaining a life estate.  Two years ago she moved into nursing home.  I am selling the property and the sale price is being divided between us.  Please advise tax consequences to us.  Thanks,

 

Dear J:  Because you received this property as a gift you start with a tax basis equal to your aunt's.  Because your aunt acquired this property long ago I am going to assign a zero basis to it.  Your  aunt moved out two years ago so her portion of the sale price will still be eligible for tax exclusion under code section 121.  Your portion of the sale price will be subject to both state and federal capital gains tax, or will be eligible for tax deferral under code section 1031 if you chose to go the route.  Sincerely, 

Steve Hickox
Attorney / President

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