Personal Exemption for Residence Sale

If they did that, how would they meet the ownership requirements of owning the home for 2 out of the last 5 years?  They only owned part of the home for that period.  Sounds like someone had a great plan to beat the system with the life estate, right up to the day they decided to sell the home.

my thoughts..

1. three children "give back" their share, to taxpayer, right?

2. house has not sold as of right now

3. house sells after the gift back then, one 1099 issued to taxpayer

If that above is true I think married filing joint taxpayer quialties for full $ 500,000 exemption becauise it was taxpayer's house for at least two of five prevoius years

"They've just realized that they have a life estate on this home,"

Um, didn't they have to sign paperwork to accomplish this?

You seem to have both a partial ownership for the parents and a life estate statement? How does the 48% fit into this? The parents own the other 52%?

There is a table to determine the value of the life estate, which doesn't carry a % of ownership which you stated, that is a bit confusing. It has a value. I found you a table:

https://public-dhhs.ne.gov/nfocus/Manuals/APX469/apx469/life_estate_and_remainder_interest_table.htm