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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28918
Experience:  Taxes, Immigration, Labor Relations
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My mother, who is 91 y/o, recently reclaimed some properties

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My mother, who is 91 y/o, recently reclaimed some properties that a daughter had purchased with money from the sale of a home my mother owned back in the 80s. The trust is a "Special Needs Trust". I am a co-trustee and me and my brothers, the other two trustees, want to know that if we were to sell one of the properties under the trust to buy a small house for our mother to live her last days as its her wish - Would the trust be liable for capital gains taxes?

Lev :

Hi and welcome to our site!
In general - yes - a "Special Needs Trust" is an irrevocable trust which is a separate legal and taxing entity.
If the trust recognizes a capital gain (or any other taxable income) - that income is reported on trust;s income tax return - form 1041 - and after allowable deductions - the trust might be liable for for income taxes on that income.
As long as income is realized - it doesn't matter how proceeds are used - to purchase another house or any different way.
Taxation of Special Needs Trust might be very complex and I strongly suggest to have a local CPA helping you.
You may use this publication as a reference - http://www.elder-law.com/files/SNTtaxation.pdf

Customer:

Oh, okay. So it is taxable then. Would the taxes be as high as a "normal" capital gain or is it lower?

Customer:

I am not the person who you think I am ....I am notCustomer!!!

Customer:

How did that name get on my computer question?

Lev :

Hmm... that is something I may not know - I will report that to customer support to investigate...
Sorry - experts do not have access to your account.

Lev :

If that is a long term capital gain - it will be taxed at reduced rate - not more than 15%.

Customer:

What would determine a long term capital gain. The property was purchased at least 20 years ago and my sister had it under her name. My mother got it back into the Special Needs Trust on May of this year.

Lev :

If the Special Needs Trust PURCHASED the property on May of this year - that would be a short term capital gain - and the purchase price should be used to determine the capital gain.
If the property was contributed by your sister as a GIFT - the donor's basis will be used to calculate the capital gain - and that will be a long term capital gain.

Customer:

Oh, okay. Thank you for your service. Have a good night.

Lev :

Appreciate your warm words. I am glad to be helpful.

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