Contact UsFamily had a revocable trust. The trust purchased a house and used for rental property. Upon death it automatically became an irrevocable trust still renting the house. The house has now been sold and the proceeds deposited in the trust account. The trust will pay the capital gains tax.
Is is correct to have the trust pay the gains as the trust owned the home? Can distributions to the beneficiaries be considered inheritance?
TaxConnections Members... Answer This Question
Want To be One of Our Tax Experts? Register Here
Tax Professional Answers
John Stancil
Capital gains are not considered distributable net income and would be taxed at the trust level.
If it is the last year of the trust, you should pass the tax on to the beneficiaries and let them deal with the taxes on their own return. This would allow the beneficiaries to deduct any losses from the sale. For the beneficiaries, their basis in the house would be the fair market value of the house and would most likely have a loss on the sale, which could be deducted on their Schedule D.
Leave a Comment
338 weeks ago
If it is the last year of the trust, you should pass the tax on to the beneficiaries and let them deal with the taxes on their own return. This would allow the beneficiaries to deduct any losses from the sale. For the beneficiaries, their basis in the house would be the fair market value of the house and would most likely have a loss on the sale, which could be deducted on their Schedule D.
Question Owner
The trust is still active with more rental property. There is a large profit from the sale of the house...no losses. The proceeds from the sale were deposited into the trust account and the beneficiaries are wanting to take the money out and distribute among themselves. As stated the trust purchased the home and the trust sold the home. I don't see how they can take the funds out as inheritance as they would like to do. Can you help??
Reply
338 weeks ago