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  1. #1
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    Oct 2019
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    Question Calculation of Taxes on Real Estate from a Trust

    My grandmother had a trust, revocable and now irrevocable, in which she is Trustor and Grantor/Settlor.
    My mother was Co-Trustee.

    Grandmother passed in 2013, nothing was done with the property in the trust. There are multiple reasons(don't think details matter as nobody that matters has issue with the situation).

    Mother passed in 2018.

    Prior to mother passing I was made trustee, legally.

    Now the house is ready to be sold and the trust assets, home, disbursed. Proceeds will go into an account with the trust's EIN on it.

    What taxes are the beneficiaries going to pay, if any?

    Who is the best professional to contact to confirm/assure this is done properly?

    What else should I be aware of?

    Thanks

  2. #2
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    Oct 2014
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting pacnw
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    What taxes are the beneficiaries going to pay, if any?
    The grandmother had a revocable trust in which she apparently put her home. When she died, that trust became irrevocable. The adjusted basis of the house will be the fair market value (FMV) of the house on the day she died as adjusted for any improvements, depreciation, etc, that happened after she died. When the trust sells the home, it will realize a gain or loss on the sale which is computed by taking the net sales proceeds (the gross sales price less selling expenses) and subtracting from that the adjusted basis. If the trust distributes the cash from the sale to the beneficiaries during the same tax year then each beneficiary will report his/her share of the gain on his/her own personal income tax return and pay the capital gain tax on it. If the trust holds the money, though, then it will pay the tax on the gain instead. Having the trust pay the tax usually results in a worse outcome because the tax rate schedule for the trust may result in a higher rate of tax imposed on the income. There may be state income taxes to pay as well as well as some kind of state transfer tax to be paid at the time of the sale, too.

    A tax attorney or CPA familiar with trust taxation could certainly assist the trust with this.

  3. #3
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    Oct 2006
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting Taxing Matters
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    The grandmother had a revocable trust in which she apparently put her home. When she died, that trust became irrevocable. The adjusted basis of the house will be the fair market value (FMV) of the house on the day she died as adjusted for any improvements, depreciation, etc, that happened after she died. When the trust sells the home, it will realize a gain or loss on the sale which is computed by taking the net sales proceeds (the gross sales price less selling expenses) and subtracting from that the adjusted basis. If the trust distributes the cash from the sale to the beneficiaries during the same tax year then each beneficiary will report his/her share of the gain on his/her own personal income tax return and pay the capital gain tax on it. If the trust holds the money, though, then it will pay the tax on the gain instead. Having the trust pay the tax usually results in a worse outcome because the tax rate schedule for the trust may result in a higher rate of tax imposed on the income. There may be state income taxes to pay as well as well as some kind of state transfer tax to be paid at the time of the sale, too.

    A tax attorney or CPA familiar with trust taxation could certainly assist the trust with this.
    What if mom was the original beneficiary of grandma's trust, and the current beneficiaries are secondary beneficiaries? Would that effect basis?

  4. #4
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting llworking
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    What if mom was the original beneficiary of grandma's trust, and the current beneficiaries are secondary beneficiaries? Would that effect basis?
    It would have if the trust had distributed the assets to the mother. But evidently the trust never did that.

  5. #5
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    The trust never did distribute.
    One beneficiary is primary.
    I am a beneficiary only because my mother passed prior to disbursement.

    How does one go about determining value of a home years prior?

  6. #6
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting pacnw
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    How does one go about determining value of a home years prior?
    There are appraisers that are experienced in doing historical appraisals of real estate.

  7. #7
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting Taxing Matters
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    The grandmother had a revocable trust in which she apparently put her home. When she died, that trust became irrevocable. The adjusted basis of the house will be the fair market value (FMV) of the house on the day she died as adjusted for any improvements, depreciation, etc, that happened after she died. When the trust sells the home, it will realize a gain or loss on the sale which is computed by taking the net sales proceeds (the gross sales price less selling expenses) and subtracting from that the adjusted basis. If the trust distributes the cash from the sale to the beneficiaries during the same tax year then each beneficiary will report his/her share of the gain on his/her own personal income tax return and pay the capital gain tax on it. If the trust holds the money, though, then it will pay the tax on the gain instead. Having the trust pay the tax usually results in a worse outcome because the tax rate schedule for the trust may result in a higher rate of tax imposed on the income. There may be state income taxes to pay as well as well as some kind of state transfer tax to be paid at the time of the sale, too.

    A tax attorney or CPA familiar with trust taxation could certainly assist the trust with this.
    If there is a loss, FMV at time of death is greater than the sale price, then would that considered a loss on beneficiary's taxes for that year?

    Again, we are only referring to any loss or profit based on the FMV and not the distribution amount being taxable, correct? Yes, I am looking for a local person.

  8. #8
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting pacnw
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    If there is a loss, FMV at time of death is greater than the sale price, then would that considered a loss on beneficiary's taxes for that year?

    Again, we are only referring to any loss or profit based on the FMV and not the distribution amount being taxable, correct? Yes, I am looking for a local person.
    Yes, that is correct. What should happen is that the trust will issue a Schedule K1 to each beneficiary outlining the taxable gain or loss for the beneficiary.

  9. #9
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    I have contacted a few tax ann CPA's but have gotten conflicting(or maybe I mis understood them) info.
    Let's use some numbers:

    $1,000,000. FMV in 2013
    $ 750,000. Sale of home, gross
    $ 40,000. Sale expenses
    $ 710,000. Sale of home, net

    $ 210,000. capital gains loss (is this correct?)

    2 beneficiaries so each get:

    $ 355,000. distribution
    $ 105,000. capital gains credit/loss for BENEFICIARIES' tax return

    My understanding is there is no tax on the distribution amount.

    The state the trust/house is in has state income tax. How does this impact the beneficiaries?

    Again, thanks.
    I am not trying to do this myself, but want to find someone who knows what they are doing and so far I am not convinced I have found anyone.

  10. #10
    Join Date
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    Default Re: Calculation of Taxes on Real Estate from a Trust

    Quote Quoting pacnw
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    I have contacted a few tax ann CPA's but have gotten conflicting(or maybe I mis understood them) info.
    Let's use some numbers:

    $1,000,000. FMV in 2013
    $ 750,000. Sale of home, gross
    $ 40,000. Sale expenses
    $ 710,000. Sale of home, net

    $ 210,000. capital gains loss (is this correct?)

    2 beneficiaries so each get:

    $ 355,000. distribution
    $ 105,000. capital gains credit/loss for BENEFICIARIES' tax return

    My understanding is there is no tax on the distribution amount.

    The state the trust/house is in has state income tax. How does this impact the beneficiaries?

    Again, thanks.
    I am not trying to do this myself, but want to find someone who knows what they are doing and so far I am not convinced I have found anyone.

    That is essentially accurate. If the trust fully distributes the cash in the same year that the sale is made, then everything will pass through to the beneficiaries, via a Schedule K1, to be included on the beneficiaries tax return. Your numbers do result in a capital loss. Unless you have other capital gains to take the loss against, however, you will be limited to taking 3000.00 a year of capital loss until the capital loss is used up. Its not a capital gains loss, its just a capital loss.

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