Terminal Illness and Real Estate: When to Sell Before Death

A terminally ill woman is weighing whether to sell a rental condominium during her lifetime and absorb an estimated $100,000 capital-gains tax liability, or hold the property and pass it to heirs, according to a financial advice column published by MarketWatch. The situation highlights a tax planning dilemma that arises frequently when seriously ill property owners must make time-sensitive estate decisions.

The property is currently occupied by the woman's younger son, who has expressed a desire to move out and live elsewhere with friends, adding urgency to the question of what to do with the asset. With the occupant potentially departing, the owner faces a choice between selling now at a significant tax cost or retaining the property through death.

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The central tax consideration is the stepped-up basis rule under U.S. federal law. When a property owner dies, heirs typically inherit assets at the fair market value on the date of death rather than the original purchase price, which can eliminate or sharply reduce embedded capital gains. For a terminally ill owner sitting on a large unrealized gain, waiting to transfer the asset through an estate rather than selling outright could preserve substantial wealth for beneficiaries.

However, the calculus is not straightforward. Liquidity needs, estate planning goals, the son's housing situation, ongoing carrying costs, and the timeline of the illness all factor into the decision. Financial and estate planning advisers generally recommend consulting both a tax attorney and a certified financial planner before acting, as individual circumstances vary widely and tax law changes can alter outcomes.

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