Seven years ago, my mother gave my brother and I each a 33.33% ownership in her condo. She retained a third ownership for herself and continued to live there until moving into an independent living residence. We just sold the condo for a net of $75k...do my brother and I each have a capital gains tax liability of the $25k we each gained? The cost basis was zero. ...On regards to the look-back...My brother deposited the $75k into moms account - should he have deposited $25k in her account and the other $50k in a joint account for me and him? (we want to use the money to help her with expenses if she needs, but don't want it to be penalized if she needs to go into a nursing home. Is it too late?
So to me there's 2 paths on how to deal with what technically is 25k of yours & 25k of bros $ from your legal 1/3 ownership....
- you each get your 1/3 share of ownership back; mom writes a check for the exact 1/3 of sale of house proceeds to each of you. It's your $, you do whatever with it but in an account in your name. If Medicaid is applied for later & medicaid on does a transfer inquiry on this, then you provide proof of ownership to support that it was yours & no gifting. An elder law atty would be helpful in this, but if you keep all the paper trail you (you MassMike not your bro) could deal with it yourself imho. If you do this, you really really need to get on this ASAP & move the 50k out asap, so its not too too much time lapse from when condo sold. Your brother falls on the sword for this as it was his error, lack of knowledge, rush to do, etc. that will cause the gifting issues for Medicaid, so you keep the records.
-OR you & bro decide that all the $ from the sale of the condo is moms. Your 50k is moms 50k. Mom uses it as need be to pay for her costs of IL, preneed funeral, dental care, etc. No gifting issues from Medicaid ever to deal with.
You & bro kinda need to be in agreement on & do the same decision to keep future issues as minimal as possible.
You & bro still have whatever the capital gains ends up at no matter which path is done as you two were legal owners.
As to depositing the funds in separate accounts, I think the issue would arise of her gifting $25K to each of you, but if the $75K were in an account with her name only, I think it would act to deter her from getting Medicaid funds if she needed them until she did a spend down.
I agree that professional involvement would be ideal, although you have a good grasp of the possibilities and could probably do some research on the various aspects. However, I would seriously consider professional advice. Some attorneys, such as ours, have a background in estate planning, gifting and other tax aspects as they relate to elder law and advance planning.
This might have changed, so that is why I suggest you see a professional. Years ago if one sold their primary residence, they were allowed to use up to $250,000 as a deductible on their income taxes. So your Mom might not have any capital gains taxes on that $25k as that is well below the $250k.
Now, for you and your brother, the condo probably would be an "investment" as that wasn't your primary residence [I assume], thus there are different capital gain calculations used. It's up to an Accountant to judge what "base" is used. Putting your names on the Deed could mean your "base" was the amount that your Mom had paid for her condo, instead of what the condo was worth 7 years ago.