Capital Gains on House Sale from Living Trust

My wife is the trustee for the living trust from the death of her sister. My wife's niece and nephew have lived in her late sister's home since her death 18 months ago. My wife wants to liquidate the house and distribute the proceeds of the sale among her sister's children. Will there be a taxable event in the form of capital gains as a result of the sale? If so, are there any strategies to avoid these taxes before the house is sold?

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Reply to
SBC-SF
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Assuming the sister was the sole owner of the house, its basis is the value it had on her date of death. So there would be a capital gain only to the extent it has gone up in value since then. In general when someone inherits something he becomes the legal owner on the date of death, even though he really can't do anything with it until the formalities are out of the way. So if local law and the terms of the tust are cooperative, the kids would be entitled to an exemption of $250,000 if they live there for another six months before the place is sold. Stu

Reply to
Stuart A. Bronstein

Presumably, the trust was worded in a way that it avoided probate and the beneficiaries received the house with a stepped up basis upon her passing. Given, that real estate peaked and likely hasn't risen much in those 18 months, there may be no gain above the stepped up basis. If there's a large gain since that time, I'd recommend selling after 24 months, since they lived in the house since then, they can take advantage of the every two year exclusion on gains. Disclaimer - I've made a series of assumptions here as there are missing details. The terms of the trust are key here. Gains in the last 18 months are also a question. JOE

Reply to
joetaxpayer

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