Thank you for asking for clarification and followup. You are able to continue asking for followup until the question closes or you are satisfied with the answer.
When your parent's transferred the property to the trustee, of an irrevocable trust, They gave up all claims to the property; the property was there for no longer in your parent's estate. This is because the irrevocable trust is a seperate taxable entity which (who ) then owned the property.
Either befor or after your parent's death, the trust transfered the property to you. So it was a gift. As a gift you do not get a stepped up basis.
When the property went from the parents to the irrevocable trust, it was also a gift to the trust. AND, that means the trust does not get a stepped up basis. The basis is the adjusted cost basis of the original owner (your parents) as of the date of the transfer into the irrevocable trust.
When the trust tarnsfered it to you, then that is also a gift, in which case also you do not get a stepped up basis. Your basis would be the adjusted cost basis of the property as of the date of transfer.
YOu paid no tax on the inheritance or gift, of the property, but when you sell it you have to pay the capital gains, based on the adjusted cost basis.
The cost basis for the trust then was: orignal cost of the property from when your parents bought it + improvements and additions, + cost of major repairs, + any closing costs that were not previously taken as a deduction.
Your cost basis was then: The trust cost basis + any major repairs + any improvements or additions.
Essentially, you are in fact, then, because there is no stepped up basis, having to figure capital gains from the original purchase of the property.
Many people, when they do estate management, are trying to save the bulk of the estate going to taxes. Overall you do have tax savings, because the estate taxes would be greater than the capital gains taxes. Unfortunately, many people do not realize this aspect of using an irrevocable trust. A simple revocble trust would be a different scenario.
You did not really inherit the property from your parents. What happend was, the trust transferred the property to you as a result of your parents death (or befor their death) by the rules of the trust. The trust gifted you the property.
Clarification on my type: Should have read: "the trust pays the tax on capital gains" (but that was for the event that the trust sold the property and then dispensed the money to you). When I typed that line, it was still unclear tome exactly how the property and property sales was being transfered to you and your siblings.
If the trust had sold the property and then disbursed the proceeds of sale to the siblings, the trust would pay the taxes. (or if the trust documentation provided, the tax debt could be passed on as well).