If a principal residence is held in a revocable trust but the husband and wife have lived in the residence for more than five years and the grantor of the trust is the husband with the wife as trustee with children as beneficiaries can the couple claim the $500000 exclusion from gain under US federal tax law on the sale of the house by the trust? Note that a revocable trust would not be considered a gift for gift tax or estate purposes and the residence would be treated as owned by the husband and a part of his estate when he died.
State/Country relating to question: New York
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"Grantor trust" is a term used in the IRC to describe any trust over which the grantor or other owner retains the power to control or direct the trust's income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. (Examples, the power to decide who receives income, the power to vote or to direct the vote of the stock held by the trust or to control the investment of the trust funds, the power to revoke the trust, etc.) All "revocable trusts" are by definition grantor trusts. An "irrevocable trust" can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code §§ 671, 673, 674, 675, 676, or 677 are met. If a trust is a grantor trust, then the grantor is treated as the owner of the assets, the trust is disregarded as a separate tax entity, and all income is taxed to the grantor.Therefore - even the principal residence is held in a revocable trust - it is still treated as owned by the grantor - and if sold - up to $500,000 exclusion from capital gain under IRC section 121 may be used by the couple.
thank you-- why is the answer not printable?
I will switch to Q&A mode - and you will be able to print - please refresh teh page in a few mins.Let me know if you need any help or clacification.
Taxes, Immigration, Labor Relations
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