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House Transfer After Death & Capital Gains

Question: My Mother has died and left her house to all four of her children but she also stated in the will that her youngest son could live in the house for 2 years after her death. Can we leave the house in her name until we sell it? Will we have to pay capital gains even though it will be my brother’s principal residence?

When your mother passed away each of the four of you became the owners of the property and it makes no difference how you leave the registration. For tax purposes each of you became 1/4 owners of the house and the cost base is as of the date of death.

When the property is sold, your youngest brother can claim the principal residence exclusion for each year he was in the home. The remaining beneficiaries will be taxed on gains from the date of death to the date of sale unless you also occupy the property.

Note that the taxable amount of the gain for each beneficiary subject to tax would be 1/8th of the gain.