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sale of real estate with life estate

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Level 1

Irrevocable trust owns house with a life estate for grantor. Beneficiaries of the trust sell the property after grantor's death. According to the trust document grantor can report the sale with the gain subject to exclusion as his personal residence. But the house deed is in the name of the trust and the trust received the 1099S on the sale. Does the sale get reported on the trust return or the individual return and are disclosure notes required with the reporting of the sales?

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7 Replies 7
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Level 15

Sold after death = reportable by owner as of time of sale, i.e. trust


ex-AllStar
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Level 11

Since when does the trust document have anything to do with the tax law?  But the remainder owners get stepped-up basis on the full value of the house, so where is the gain?  Was it not sold right away?

These arrangements are done by people who want the taxpayers to cover the cost of the nursing home so the estate can cover the cost of the beneficiaries' cruise.  

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Level 1

Please see my updated post and thank you for taking the time to reply.

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Level 12

I always like to search for well-written articles. Here's one for you:

https://finance.zacks.com/pay-taxes-sale-home-trust-7676.html

 

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"Level Up" is a gaming function, not a real life function.
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Level 12

Here's another:

https://listwithclever.com/real-estate-blog/selling-a-house-in-an-irrevocable-trust/

 

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"Level Up" is a gaming function, not a real life function.
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Level 1

I stated the facts incorrectly. Trust was created in 2018 and the deed was changed to the trust. The house was sold in 2019 when the grantor entered care facility. Grantor passed in 2020. The taxpayer has told me that the attorney who created the trust document intended for the grantor to report the house sale using the exclusion of gain rules. I cannot find documentation to tell me where to report the sale - the trust return or the individual - or both.

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Level 11

What makes you think the trust was irrevocable?  If this were a typical grantor trust, the sale would go on the individual's 1040 and the Section 121 exclusion would apply.  But the result might be different, depending on the terms of an irrevocable trust.  And have you seen the deed?  It could have reserved a life estate for the owner -- who then would have to have been paid for it, since she was still alive at time of sale.    

Just another Tangled Web © case.