thanks for all the responses. I am still learning about life estates,
although I don't know
how much space is left in this brain for new stuff.

I thought I had the basis nailed down; however, one article I came
across said that the other
kind of EA (enrolled actuary) might be needed for calculating basis.
Yet the proceeds were
divided evenly between the original owner and the two beneficiaries,
so no actuarial tables
were consulted there.

Thanks again for yall's contributions during the crunch.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote:
- quote -

Right, and that does not itself resolve the issue. But even for an
undivided partial interest, if the donor remained living in the
premises and did not pay rent, that would be evidence (though, of
course, not conclusive) that would indicate the property is not held
for investment.

- quote -

The original post said, "There was no purchase and property would be
considered a personal residence for the owner who gifted the interest
to the client."

If it's the donor's personal residence, he is still living there.

- quote -

No, the original post, as stated above, indicated that the donor
continued to live in the property as his personal residence.

- quote -

No, Reggie responded to an intermediate post. The original post
certainly did say that.

- quote -

And there are other posters who are trying to make thoughtful,
informed and applicable comments and not just sniping based on
insufficient information.

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote in message
news:Xns9BCA5F9595E65spamtraplexregiacom[at]130.133.1.4...
- quote -

that could be "an undivided x% interest"

It also said that the donnor continued to live
- quote -

not in the OP, as far as I can see.

These are inconsistent with saying the
- quote -

yeah, right. such an assumption!

- quote -

ok, but more assumptions on your part, not fitting the OP.

- quote -

this was not in the OP to which Reggie responded.


The implication
- quote -

I didn't see any assumption of full ownership.


I think there are other subthreads with more facts that are doing a fine job
with this one.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Gil Faver" <rowdy'sboss[at]xxyz.com> wrote:
- quote -

The original post said the gift was of "an interest" in property, not
property itself. It also said that the donnor continued to live
there after the transfer. These are inconsistent with saying the
donnor no longer had any ownership interest, unless he was paying
rent to the donnee. Given the issue, payment of rent would probably
have been disclosed if it were the situation.

- quote -

Again, the original post clearly stated the donnor continued to live
in the property, after having given "an interest." The implication
clearly was that full ownership was not given, and jumping to that
conclusion without further information was not warranted.

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<brew.one[at]gmail.com> wrote in message
news:bd2b00ab-ba59-40a8-bcbb-15249685dc2c[at]t3g2000yqa.googlegroups.com...
- quote -

You asked - if you receive an interest in real estate as a gift and you
never use the property, can you claim that it is an investment?

That depends on the nature of the use of the property AND your intent. It
doesn't have to be a rental to be an investment, it can be HELD as an
investment. And being held as an investment doesn't necessarily mean that
you can NEVER use it - for example, you could spend possibly 2 working
weekends a year at the property to take care of necessary maintenance and
still have it qualify, but if you spent every weekend there and it was
located at the beach it would be hard sell.

You also have to look closely at the concept of YOU using it. This would
include you, your friends and family especially if they used it for free.
BUT you MIGHT be able to let your church group use it as a retreat, or maybe
your son's Boy Scout troop could camp there and still have it qualify as an
investment.

Remember the main issue here is INTENT and USE. So Document, Document,
Document - put notes in with your tax returns (not to be sent in but as
support like your other records) noting your intentions and how often you
analyze the situation. The more contemporaneous records you have the better
off you'll be if the position is questioned.

About disclosing the position to the IRS - by putting it on the return you
will be disclosing it to the IRS. Just make sure to use the word INHERITED
instead of a date for acquired. This will let them know how the property
was acquired and will be sufficient to disclose everything they need to
know.

If you're asking about the form where you disclose a position, I don't see
that as appropriate. That form, the form number eludes me at the moment, is
supposed to be used when you're taking a position that is CONTRARY to what
was reported to you by a third part.

Good luck,
Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote in message
news:Xns9BC9B9F931920spamtraplexregiacom[at]130.133.1.4...
- quote -

the nature of the interest was not disclosed in the original post, which
Reggie responded to.

- quote -

ditto.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <bd2b00ab-ba59-40a8-bcbb-15249685dc2c[at]t3g2000yqa.googlegroups.com> ,
<brew.one[at]gmail.com> wrote:
- quote -


How quick was that claim deed?

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Reggie" <Reggie[at]wantsnospam.com> wrote:
- quote -

So far so good, though it conflicts with OP's statement that the
transferee received only a remainder interest while the donnor retained
a life estate. So the original owner is still an owner of the
property.

- quote -

Again, ok so far as it goes. However even if the donnor gave the house
outright but continued to live there without paying rent (as he is
apparently doing), the fact that the "owner" would not be charging rent
is evidence that the property is not held for investment.

Stu

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Mar 9, 5:19*pm, "Gene E. Utterback, EA, RFC, ABA"
<g...[at]alliancetax.com> wrote:
- quote -

had an allowable loss on
the Schedule D--my client received a 1099-S for her share of the
proceeds from the sale and the
transaction will be reported.

A quick claim deed (my client received a 1/3 interest) was filed
shortly after purchase, so owner's
basis and FMV at the time of the gift are pretty much one and the
same. A significant loss was
taken on the sale.

To return to the crux of the matter--if you receive an interest in
real estate as a gift and you never use
the property, can you claim that it is an investment? I think this is
true for inherited property, does it
hold true for a gift? Does the fact that the giver used it as
personal property affect the outcome?

And just to muddle the whole issue--if I decided to prepare a return
claiming a loss, would it be appropriate
to disclose the position to the IRS?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<brew.one[at]gmail.com> wrote in message
news:35406824-1547-403f-9aae-59483a85c93c[at]v39g2000yqm.googlegroups.com...
- quote -

And herein lies the info necessary to actually answer the question.

The recipient was NOT gifted the property because the gift does NOT complete
until the giftor (is that even a word?) died. The life estate creates an
incomplete gift. The recipient has a remainder interest in the property as
long as the giftor is alive, but the giftor can control what happens.

When the giftor dies the recipient will inherit the property and will get an
ADJUSTED basis in it. We frequently say they will get a step up in basis
but in this housing market it is possible that the basis will actually be
stepped DOWN. Make sure to double check your basis calculations!

You've provided no information about whether the giftor is alive or dead and
you've said nothing about whether the property was sold or not.

Just like any "investment" (used loosely here) there is neither gain no loss
until complete disposition.

So can she take a loss - SURE, when she disposes of the property IF there is
any loss to take. However, the real question is whether the loss is capital
(Schedule D) or ordinary (Form 4797). To answer that we have to look to the
nature of use of the property.

In the hands of the original owner it was personal residence. In the hands
of the remainderman it was NOT a personal residence, but most likely a
capital asset. The giftor lived in the house with a retained life estate,
hence they would NOT have paid rent to the remainderman, hence it could NOT
have been trade or business property, hence it is NOT eligible for ordinary
loss treatment on Form 4797.

Most of the adult children I've worked with who sold an inherited house were
actually able to claim a Schedule D loss. The heir inherits property and
their basis is fixed when that happens. The immediately sell the property
for THAT price. BUT they have to pay settlement costs, which increases the
basis by the amount of those costs. The Schedule D shows a loss for the
costs of settlement.

Schedule D Treatment for this one.

Good luck,
Gene E. Utterback, EA, RFC, ABA

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Mar 8, 2:14 pm, "Reggie" <Reg...[at]wantsnospam.com> wrote:

- quote -

But how do you prove intent? I would expect there to be some section
of the code that allows you file a statement with your return
indicating that you are holding property XYZ for investment so that
gains and losses on XYZ are capital gains, there will be no section
121 exclusion, and you won't be using XYZ (such as living in it,
renting it out, running a business out of it). I found IRC 266, but
it is just an election to capitalize carrying charges, not treat the
whole thing as an investment. There is a similar election for
currency contracts in section 988, so maybe there is one for real
estate.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

it was a life estate; the recipient never used the property but
received the proceeds
while the grantor was still alive.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In misc.taxes.moderated, Bill wrote:


- quote -

Suppose the new owner lived in the house less than two years? Still
no capital loss?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Bill" <an_ordinary_guy_158[at]hotmail.com> wrote in message
news:25990-49B34875-1183[at]storefull-3113.bay.webtv.net...
- quote -

I disagree. the original owner no longer owns the house, so his intent as
to what is now owned by the giftee is irrelevant. What matters is the
intent of the giftee. The fact that he did not purchase the property is
also irrelevant. If the giftee owns it with the intent to make a profit
(i.e. is not the giftee's personal residence) it certainly could be
considered investment property.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <cBNsl.1989$%u5.797[at]nwrddc01.gnilink.net> ,
Phil Marti <prm20871[at]verizon.net> wrote:
- quote -


I would state this differently:

If gifted property has a FMV at time of gift lower than donor's
basis, then basis is FMV at time of gift to compute loss and is
donor's basis to compute gain.


If gifted when FMV at time of gift is higher than donor's basis,
use donors basis to compute gain or loss.


Same results, different statement.
--
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

Sorry, I don't know of a citation, but something seems to be missing from
the story. If gifted property is sold at a loss basis is the lesser of the
donor's adjusted basis at the time of the transfer or FMV at the time of the
transfer. So there must have been some time in between the transfer and the
sale for there to be a loss.

What use was the recipient making of the property during that time?
--
Phil Marti
Clarksburg, MD

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

brew.one[at]gmail.com (Brew1) posted:

- quote -

If as you say, the property was considered a personal residence for the
owner who gifted an interest in that property to someone else, it
appears it would not be proper to take a loss. One cannot write off a
loss on a personal residence.

Bill

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

client received an interest in a residence as a gift. An accountant
planted the idea that she can
take a loss on the sale because it's "investment property."

I recall the definition (but can't find the citation) of investment
property as something along the
lines of "purchased with the intent of selling at a profit." There
was no purchase and property
would be considered a personal residence for the owner who gifted the
interest to the client.

I've established her basis, the question here is can she take a loss?

Thanks for your input.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >