[artdharma]

My stepdaughter inherited a condo in Seattle from her grandmother in 1999. A life estate was bequeathed to the grandmother's then-husband, and he died this year. At that point, the shares in the co-op became unencumbered by the life estate.

My stepdaughter is going to sell the condo. Given that she doesn't own any "real property," and only shares in the association, what tax liabilities will she face when she sells? She didn't have to pay any inheritance tax on the condo, and didn't even have to pay any real estate transfer taxes to the county because legally she doesn't own any "real estate."

What tax liabilities will she face, if any, upon selling her shares and thus the ownership of the condo?

Will she pay a capital gains tax on the increase in value of the property between 1999 and this year? She has not lived in the condo, so it doesn't qualify as a primary residence. Thanks.

[ebaines]

Will she pay a capital gains tax on the increase in value of the property between 1999 and this year?

Yes, that's correct. Her net selling proceeds on the sale would be the selling price less costs of selling such as agent fees, condo association transfer fees (if any), recording fees, legal fees, etc. I trust the executor of the estate had an apprasial done of the condo market value back in 1999, so she knows what her tax basis is.

[ScottGem]

A Condo (condominium) and a co-op are different animals. But you used the terms interchangeably and they aren't. A condo IS real property. You own the unit and that includes rights to use the common grounds. Selling a condo would be subject to the same rules as selling a house.

With a Co-op, you don't own any real estate but do own shares in a corporation. Those shares entitle you to the use of a unit and common facilities. I'm not sure if the are specific rules in WA for selling co-op shares.

On the Federal side, selling a co-op is the same as selling a home. However, this doesn't appear to be your daughter's home. Unless she actually lived there, that could be an issue. I suggest she consult a local tax specialist.

[AtlantaTaxExpert]

Ebaines,

Based on the OP's post, would not stepped-up value be a consideration?

[ebaines]

You're asking of the cost basis can be stepped up to fair market value as of 2015, because of the life estate? That's a great question and I'm afraid I'm a bit out of my depth on this. I suspect that you may be correct - that the grandmother's estate retained an interest in the property and so the value of the home as of 2015 is part of the grandmother's estate. Given that she died 16 years ago, depending on the value of the home and her other assets at time of death it's possible the estate may to file estate tax return using 1999's exclusions. Given the complicated nature of all this, my advice to the OP is to seek out a professional who is well-versed in estate tax issues to ask this question. Perhaps if the lawyer who helped draft the original life estate provision is still in businesss you might start with him or her.

[AtlantaTaxExpert]

Agreed; the OP needs to get local, competent tax advice on this issue, as I too am unsure if stepped-up value applies here. I THINK it does, but someone with more experience in estate tax law should address the issue.

[ebaines]

I did a little more research, and, well, let's just say it's complicated and consultation with an estate tax professional is definitely needed. My current understanding is that the stepdaughter is considered to have acquired the property from the grandmother's estate, not from the step-grandfather, and hence her basis is the fair market value as of 1999, even though she didn't actually acquire the propery until 2015. I am basing this on the following: Untitled Document

But please, ask a pro!

[AtlantaTaxExpert]

Noted!