Asked in Real Estate Law and Tax Law for Georgia

Q: Family home in life estate deed. If all agree to sell home before tenant dies, what tax implic tenant & remaindermen

Is tenant eligible for medicaid if home in 15 yr old life estate is sold Georgia

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Selling a home held in a life estate deed before the life tenant passes away can indeed have tax implications for both the life tenant and the remaindermen. If all parties agree to sell the property, the proceeds from the sale are typically divided between the life tenant and the remaindermen based on the life tenant's age and the property's value, according to IRS tables. This division affects how much each party receives and their respective tax responsibilities. The life tenant may be eligible for capital gains tax exclusions on their portion if they meet certain IRS requirements, such as using the home as their primary residence for at least two of the last five years.

Regarding Medicaid eligibility, the sale of a home in a life estate could affect the life tenant's eligibility. Medicaid has a look-back period, currently five years in most states, during which they examine asset transfers. If assets are sold for less than fair market value, it could result in a penalty period during which the life tenant would be ineligible for Medicaid. However, since the home is being sold and not gifted, and if sold at fair market value, the proceeds from the sale could still affect eligibility depending on how they are used or invested thereafter.

Before proceeding with the sale, it would be wise to consult with a legal advisor or tax professional familiar with Georgia's specific laws regarding life estates and Medicaid rules. They can offer tailored advice based on the unique details of your situation, helping ensure that all parties understand the potential financial and legal consequences of selling the property held in a life estate. This includes advising on the best ways to handle the sale proceeds to minimize negative impacts on tax liabilities and Medicaid eligibility.

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