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My mother has dementia and is in assisted living. Her total assets right now are $11,000. I had to do a spend down to get her Medicaid. Two years ago she liquidated some investments. She gave me the money to purchase a home she could live in with me. Now she’s going to assisted living. She only provided the tax preparer part of the documents regarding the distribution. I got a letter today saying there is a $177,000 discrepancy! If she owes 15% capital gains that about $25,000! There is no way she can pay that. What should I do?

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She didn’t cheat people. She has dementia. And had it two years ago. As I said this happened before I took over everything. She got the letter not me. I see people are saying we cheated but that’s not what happened.
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Reply to mern64
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She didn’t intentionally defraud the IRS. She has dementia and this happened right before I took over. There’s no way I’m selling a 450,000 house for 25k. She has no tie to the house on paper. The 5 year look back is for skilled nursing not assisted living in my state (yet). She was approved on the up and up.
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lealonnie1 2 min ago
If your mother gave you $177k to buy a house with, and the IRS is telling her she needs to pay taxes on that money, then don't you think you need to cough up the funds, whether you sell said house or not?? Even though she "has no tie to the house on paper"?? Why would the IRS not expect their money? Because mom has dementia? She was lucid enough to liquidate funds, so the IRS will expect their cut, as they do everyone. And if mom liquidated investments 2 years ago to the tune of $177k or more, do you not feel that Medicaid will find out about that and it will affect her eligibility for long term care? How was she approved "on the up and up" having $177k in funds only 2 years ago? That makes no sense either. Savings and investments must be divulged to Medicaid in order to get approved.

Your post is very confusing, talking about "capital gains" which is paid on the sale of a home, vs normal taxes paid on income and interest.

You need a lawyer to guide you now, not random folks on an internet forum.
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Here's a financial forum on which you can better pose your question:

bogleheads.org

Crowdsourcing, like this one, but regarding all things money, assets, financial, etc.

The first attoreny I would hire is a tax attorney, then after that it may require an elder law attorney versed in Medicaid.
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Reply to Geaton777
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I agree with Lea. I would see an attorney at once.
This is complicated legal problem.
Your mother has no assets and she may need to apply for government help from Medicaid. My worry is that she may not be able to get it.
She has no money. She has no income. They will not take SS.
You, however may stand to lose your home, be accused of some sort of fraudulent behavior if you were aware of this transaction, or sustain other problems.

You say YOU got a letter today.
Can you tell me why YOU got a letter, and not your mother?

Do see an attorney and take an honest and complete document about what occurred on what date if you are able.
I wish you best of luck.
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Reply to AlvaDeer
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Sorry, I don't see how Capital gains are involved. She has not sold a house, correct? Did she sell to buy the new house she bought? I hope it was put in her name, otherwise, its considered a gift. She pulled enough investments she owes 177K in taxes or just 177k is unaccounted for?

I agree, we are layman and I think an elder lawyer is needed.

Just a question, I know things have changed but it used to be if you sold a house and bought another one within 2 years, you paid no capital gains tax?
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Reply to JoAnn29
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Her and you both, probably. You can’t cheat the taxpayer to get a free house, sorry.
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Reply to ZippyZee
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Medicaid does a 5 year look back on finances in most states to make sure funds aren't being hidden in order to qualify for government assistance. If your mother defrauded the IRS and only provided the tax preparer with part of the paperwork necessary to do her taxes, yet you bought a house with the money and now owe the IRS, you may have to sell the house to pay them. You also may face a penalty from Medicaid whereby they won't pay her long term care bills for a period of time.

Hire a Certified Elder Care attorney who's versed in Medicaid and IRS matters to guide you thru how to handle this situation. It's unfortunate you didn't hire an attorney before buying and selling homes!

Good luck to you.
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