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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3159
Experience:  I've prepared all types of taxes since 1987.
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A home titled in the name of a revocable trust that was the

Customer Question

A home titled in the name of a revocable trust that was the primary residence of the grantors for 10 years up to the date of the last surviving spouse's death on 7/26/13, was sold by the trust on 4/1/15.
Two questions:
1)
the basis of the home would be the FMV on the DOD of last surviving spouse plus capital improvements made to the property by the trustees between the DOD and the date of the sale on 4/1/15 -- correct?
2)
If the basis is what I think it is above, considering the sale price of the property and the related selling expenses a capital loss will result.
Is the capital loss deductible or is it considered a loss on personal use property and not deductible?
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.
Greetings,
1) the basis of the home would be the FMV on the DOD of last surviving spouse plus capital improvements made to the property by the trustees between the DOD and the date of the sale on 4/1/15 -- correct?
That is correct.
2) If the basis is what I think it is above, considering the sale price of the property and the related selling expenses a capital loss will result.
Is the capital loss deductible or is it considered a loss on personal use property and not deductible?
That depends on the use of the house.
Personal use will be loss that is not deductible.
If there was other than personal use (such as rental) then the loss may be deductible. Since it was formally a residence there would generally have to be evidence of intent to convert or use the property into investment or business property.
So, this is a question of facts and circumstances whether use changed or not.
http://www.irs.gov/publications/p559/ar02.html#en_US_2014_publink100099800
"Sale of decedent's residence. If the estate is the legal owner of a decedent's residence and the personal representative sells it in the course of administration, the tax treatment of gain or loss depends on how the estate holds or uses the former residence. For example, if, as the personal representative, you intend to realize the value of the house through sale, the residence is a capital asset held for investment and gain or loss is capital gain or loss (which may be deductible). This is the case even though it was the decedent's personal residence and even if you did not rent it out. If, however, the house is not held for business or investment use (for example, if you intend to permit a beneficiary to live in the residence rent-free and then distribute it to the beneficiary to live in), and you later decide to sell the residence without first converting it to business or investment use, any gain is capital gain, but a loss is not deductible."
Although the publication is in regard to an estate, the principle does still apply to the trust.
Please ask if you need more information or discussion.
Thank you.
Customer: replied 1 year ago.
In my case, the personal representative did nothing more that clean, repair and maintain the home owned by the trust with an eye towards liquidating it such that proceeds could be distributed to the beneficiaries. It was not rented nor did anyone live in it between the DOD and sales date. So, what does the phrase, "the personal representative intends to realize the value of the house through sale" contained in the IRS pub you referenced http://www.irs.gov/publications/p559/ar02.html#en_US_2014_publink100099800 really mean? Certainly, the representative intended to realize the value of the home through sale, but, he was also administrating the estate and liquidating assets so that distributions could be made. Again, do you think the capital loss is deductible?
Customer: replied 1 year ago.
OK, I think I get now, there is no evidence of intent by the trustee to convert of use this property for investment or business purposes. Hence, it's personal use property -- no capital loss allowed.
Customer: replied 1 year ago.
OK scratch the call -- we're out of time today and I believe that I've got my answer.
Expert:  jgordosea replied 1 year ago.
Glad you were able to apply the answer to your facts.
Nonetheless, please do ask if you need more help.
Otherwise thank you for rating my answer.
Best regards.

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