From 24/7 Wall St. · Vilma Rios · · 1m
Life Estate Saves Tax When Deeding House to Kids
Widow's deed without life estate left kids with $302,500 tax bill per child.
In brief
Widow's deed without life estate left kids with $302,500 tax bill per child. Widow's kids owe $45,375 federal tax each after selling house with 1985 basis. Originally reported by 24/7 Wall St..
Widow's Quick Deed
Widow signed a ten-minute quitclaim deed at kitchen table to give house to kids without lawyer.
1985 Purchase Price
She bought the three-bedroom ranch for $95,000 in 1985.
Tax Bill After Death
Kids sold house at $700,000 appraisal and owe $302,500 tax each.
Life Estate Clause
Adding a life estate clause resets basis to $700,000 and avoids tax.
Tax Rules
IRS rules say gifts keep original basis while life estates pull property into estate.
Tax Calculation
Each child owes $45,375 federal tax at 15% rate on $302,500 gain.
Five Protection Steps
Check deed for life estate, file Form 709, fix deed early, get death appraisal, keep records.
Tax Impact
One life estate clause saves $90,750 federal tax per family.
What it means
Widow's kids owe $45,375 federal tax each after selling house with 1985 basis.
