The Tax Professionals Blog

Background: A frequently encountered issue is when an elderly parent turns the title of his or her home over to a child or other beneficiary and continues to reside in the home. This situation raises important questions: How is a future sale of the home treated if it is sold before the parent’s death (will Sec 121 apply?), and is a gift tax return required? Or if the parent passes away while still residing in the home, does the beneficiary use a gift basis or the FMV on the date of death? What is the tax result if the parent moves out of the home?

Medical expenses are defined as the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body including dental expenses (Sec 213(d)(1)).

When itemizing deductions, a taxpayer is allowed to deduct a variety of taxes, including real or personal property taxes and state income or sales taxes. However, for alternative minimum tax (AMT) purposes, none of these itemized taxes is deductible. For most taxpayers, taxes represents one of the largest tax deductions, and it frequently triggers the AMT.

A beneficiary who inherits the residence of a decedent generally acquires it with a basis equal to the fair market value at the decedent’s date of death, and since it is inherited property, it is treated as held for long-term. Generally, a beneficiary will sell the residence through a broker and will have substantial sales costs. A frequent question is whether or not a loss is allowed on the sale. The answer to that question depends upon the beneficiary’s use of the property after inheriting it.