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Can My Mother Buy a Life Estate in a New Home and How Will The Purchase Affect Capital Gains?

  • September 13th, 2018
Q
My mother has a life estate in her current house. She would like to sell her house and purchase a smaller home. All the parties are in agreement. Can she purchase a life estate in the new house? How does the purchase of the new home affect capital gains for the beneficiaries?
A

Yes, the new home can also be held as a life estate. Buying a new life estate has no immediate effect on capital gains. The purchase of the new house has no effect on any capital gains that may be due on the sale of the existing house. However, it may affect the capital gains on the sale of the new house. Typically, at your mother’s death the basis in the property would be adjusted to its value at that time, a so called “step up” in basis. If the property is purchased as a life estate with the remainder owners contributing their fair share of the purchase price the life estate is not created by gift and may not be entitled to a step up in basis at the time of your mother's death. On the other hand, the basis will be the new purchase price rather than that paid by your mother when she bought her current house, so the capital gains should be lower. For more information about capital gains, click here.

For information on life estates, click here.

Local Elder Law Attorneys in Ashburn, VA

Judith Mitnick

Needham Mitnick & Pollack, PLC
Falls Church, VA

Daniel Steven

Daniel N. Steven, LLC
Rockville, MD

William Fralin

The Estate Planning & Elder Law Firm PC
Bethesda, MD


Last Modified: 09/13/2018

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