Estate of Maxwell v. Commissioner

Elderly, ill Lydia sold her home to her son and daughter-in-law (the Maxwells) for $270,000, partly forgiven and partly financed through a mortgage, but continued living there alone until her death two years later, paying rent that roughly offset the Maxwells' mortgage interest payments while they made no principal payments and Lydia forgave portions of the principal annually until forgiving the remainder entirely in her will; the Tax Court found an implied understanding that Lydia would remain in the home for life and that the mortgage would never actually be paid, and included the home's full appreciated $550,000 value, rather than the reported $210,000, in her taxable estate under Section 2036(a).