I would advise that you see an CPA or tax attorney about this. For IRS purposes, one of the disadvantages of a life time gift to you was that you did not receive "stepped-up" basis on the property, meaning your cost basis for calculating your capital gain on the sale is the difference between the amount sold in 2012 less the transferor's (your father) cost basis (the amount it was worth when he purchased). This is in contrast to an inheritance/transfer at death where the person receiving gets "stepped up" basis which is the difference between the sales price and fair market value as of date of death. Typically, the capital gain is much greater with the lifetime gift versus inheritance as you face here. The wrinkle added in here is the life estate so your CPA has to calculate the value of the life estate/remainder interest when coming to a number for your capital gain. I would be sure to reserve an amount to pay the additional tax out of the sale proceeds so you don't get caught with a large tax bill you cannot pay.
This is not legal advice nor intended to create an attorney-client relationship. The information provided here is informational in nature only. This attorney may not be licensed in the jurisdiction which you have a question about so the answer could be only general in nature. Visit Steve Zelinger's website: http://www.stevenzelinger.com/
Yes, you will likely have to pay capital gains taxes for the sale of the home.
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