Lynn, MA asked in Estate Planning and Tax Law for Massachusetts

Q: Can remainderman living in home 5 years as a care giver get the capital gains exemption if house is sold prior to death

I am a remainderman on my mom's life estate. She sold the house to my brother and I 17 years ago for $1 and kept a life estate. I have lived here for 5 years as her caregiver until she went into a nursing home. We have to sell the house prior to her passing because we can't keep it. So, if it is sold, can I, as a remainderman living here for 5 years, get the $250,000 Capitals Gains Exemption for my share of the sale?

NOTE: My brother and I and Mom are all in agreement to sell the house. Also, I understand my mother's share (defined by the IRS ACTUARIAL VALUES Tables) will be taken my medicaid.

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1 Lawyer Answer
Nina Whitehurst
Nina Whitehurst
  • Estate Planning Lawyer
  • Crossville, TN

A: Yes, the Section 121 capital gains exclusion applies to remainder interests. Here is an excerpt from that statute:

(8) Sales of remainder interests For purposes of this section—

(A) In general

At the election of the taxpayer, this section shall not fail to apply to the sale or exchange of an interest in a principal residence by reason of such interest being a remainder interest in such residence, but this section shall not apply to any other interest in such residence which is sold or exchanged separately.

(B) Exception for sales to related parties

Subparagraph (A) shall not apply to any sale to, or exchange with, any person who bears a relationship to the taxpayer which is described in section 267(b) or 707(b).

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