Legal Question in Real Estate Law in New York

Re: life estate

I am presuming your mother gifted you the property, subject to a life estate. If correct, this will be the result. On the gift of the property, the possibility of a gift tax would have been the fair market value of the house, less the value of the life estate (IRS tables give this value based upon your mother's age and life expectancy. If under $1MM, her permitted lifetime gifting limit with no tax consequence, no gift tax was due. Also, depending upon the number of people included in the gift and when it was made, there was an annual exclusion of $10M or $11M per person, which gets applied to the market value before the $1MM lifetime kicks in. Illustration: House worth $450M, life estate worth $150M, 3 children and gift made in 2004. The net gift will be $300M, with $33M of annual exclusion, and $267M of lifetime gift used to cover the balance. No gift tax involved. Assume house originally cost, with improvements $150M. This becomes the children's basis for determining gain/loss on sale when it is sold. If no child lives in the house, or had lived there as his/her primary residence for 2 of the preceding 5 years, all of the gain on sale (net selling price less transferred cost basis) will be subject to capital gain income tax when it is sold. At today's long-term tax rate of 15%, assuming it is sold for $450M, the gain of $300M will produce a $45M tax. If it is a primary residence for a child, they can exclude, from their share of the proceeds, up to $250M of profit, if single, or $500M, if married. If you need more information, contact me directly. There are no tax responsibilities if the house was the only asset mom owned. It is out of her estate for death taxes from the date of the gift, unless the gift was in contemplation of her death, and her other assets make her total taxable estate more than the allowable amount not subject to tax when she passes away.