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Richard, Attorney
Category: Estate Law
Satisfied Customers: 53698
Experience:  29 years of experience practicing law, including tax and estate planning.
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My sisters (three in total) are the trustees home that we

Customer Question

My sisters (three in total) are the trustees for a home that we inherited from our parents that was held in a revocable living trust. Our last parent (mother) passed in 2010. One sister has been living in the house since 2011 as her primary residence. The other two of us have our own residences elsewhere. We are now going to be selling the house in May of 2016. We had the house appraised very shortly after my mother's death at 385,000. It is probably now going to sell for in the range of 500,000 or thereabout. The property is still held in the revocable living trust, and we three are the trustees. Will we owe taxes on the sale, and, if so, how would the taxes owed be divided up among the three of us. Would those of us not living in the house as our primary residence be able to use any tax rules to avoid capital gains, etc.
Submitted: 7 months ago.
Category: Estate Law
Expert:  Richard replied 7 months ago.

Hi Anita! My name is ***** ***** I will be helping you today! It will take me just a few minutes to type a response to your question. Thanks for your patience!

Expert:  Richard replied 7 months ago.

If each of you own 1/3 of the house, then you would each have a long term capital gain equal to 1/3 of the sale price (reduced by closing costs) in excess of the property's basis. The basis would be the fair market value as of the date of your inheritance plus the costs of any improvements made since that time.

For example...if the sale price is $500,000, based on the typical closing costs of approximately 7%, your net proceeds would be $465,000...which, divided by 3, would mean $155,000 for each of you. The basis for each of you, presuming no improvements, would be the $385,000 divided by 3 which is $128,333 each. Thus you would each have a long term capital gain of $26,667. Your sister that lives there as her primary residence would be able to exclude all her gain under Section 121 of the Internal Revenue Code allowing an exclusion of gain up to $250,000 from the sale of their principal residence. You and your sister that don't live there would not be eligible

As far as you and your sister subject to tax. Virginia's tax rate on long term capital gain is 5.57%..for which you will get credit on your Federal tax return.

The Federal tax laws concerning taxation of long term capital gains are as follows:

0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.

In addition, starting in 2013, capital gain income became subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.

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