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tax liability of beneficiaries on home in trust sold before vs. after death of owner
Hello,
My mother owns a home in CA that she lived in with my father for 50 yrs. My father passed away last August, leaving the home in an irrevocable trust with my mother as his successor. My sister is the next trustee listed on the trust after our mother dies and we are all considering selling the home before our mother passes. Would the tax liability be greater, the same, or less if the home is sold prior to, or after our mother's passing? The home has appreciated greatly in value since it was purchased in the 50's for around $58K dollars. It's valued now between 1.2-1.5 million dollars. Any ideas about the tax liability on this as an inheritance? Would it be considered an inheritance if sold before our mother's death since the house is in a trust, or would we do better to sell the home after our mother passes? (It is her primary residence at the moment) Thanks for any advice. |
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Before you start selling your house, you must learn more about the tax implications.
If you inherit the house, your cost basis will be the fair market value of the house on the death of your mother. That means if you sell after inheriting it, you may not have any profit. If you sell the house now, then the money you get from your mother is gift. Read about Inheritances: Your U.S. Tax Return: Tax on Inheritances Read about gifts: Your U.S. Tax Return: The U.S. Gift Tax |
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If the TRUST sells the house, half of the profits will be taxed as capital gains with an original basis of $29K (one-half of the $58K original purchase price) and the other half will have a stepped-up basis equal to one-half of the Fair Market Value at the time of your father's death.
The TRUST will have to file a tax return (Form 1041) and will have to pay these taxes. Now, if the house is the ONLY asset of the estate, there will be NO estate taxes. This is a simplified answer, however. Your situation is exceptionally complicated and you REALLY SHOULD contact both an enrolled agent AND an estate planner to get these questions answered. |
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