Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

Family farm in Irrevocable trust. Do we have to pay ...

Family farm in Irrevocable trust...
Family farm in Irrevocable trust. Do we have to pay capitol gains on income from sale of land from the time of first ownership ofland in early 1930''s to today? Land in Minnesota
Show More
Show Less
Ask Your Own Tax Question
Answered in 20 minutes by:
8/3/2008
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified

Dear Roseh,

can you tell me more about this?

The family farm is in an irrevocable trust, I get that.

But what I do not know is:

Are the owners of the property, i.e. parents, etc still living?

Have you inherited the property/trust? and now you are selling it?

What are the circumstances?

Ask Your Own Tax Question
Customer reply replied 9 years ago
Reply to Ed Johnson's Post: Parents are deceased. Yes to inheritance of the property. Property in the process of sale. Some information has stated that capitol gains will need to be paid on value increase from purchase of farm. Others say gain to be paid on increase of value since last parent's death which was in 2008. Several children involved in the inheritance. Trust was set up properly but there are differing opinions on capitol gains questions from various accountants and attorneys.

DearCustomer

The reason you have having an issue of differeing opinions is because:

1. If you inherit property from the deceased, you get a stepped up basis of the FMV or appraised value as of the date of the decedent's death.

2. If the trust sells the property, the trust has to pay capital gains based on the original cost basis, (or the estate would). this is because there has been no transfer of the property to a new beneficial owner. when the propety was transfered (gifted) to the irrevocable trust, the owner gave up all control, and the trust is treated as seperate taxable entity.

Thus, in an irrevocable trust, the turst pays the taxo no capital gains and there is no stepped up basis for the property.

When the trust liquidates and the residuary beneficiaries recieve the assets, there is no tax paid on the distribution, other then on actual income of the trust in its final year. The beneficiaries take the trust's basis in any assets distributed.

If the trust gifts the property to you and your siblings, then you still have no stepped up basis.

 

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified
Ed Johnson and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 9 years ago
I'm still confused. My parents transferred the property to the trustee's upon signing the agreement on the date the trust was made.
So, we inherited the property that was in a trust in our names many years ago.
Also, there is a typo in the 5th line of your answer that makes that a bit unclear.
Can you clarify a bit before I accept your answer?
Thank you.

Dear Rosenh,

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).

 

Ask Your Own Tax Question
Customer reply replied 9 years ago
Thank you for the explanation.

Dear Roseh,

Thank you for your feedback and comments. I appreciate the bonus. Best of luck to you.

Ask Your Own Tax Question
Ask Ed Johnson Your Own Question
Ed Johnson
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
10,760 Satisfied Customers
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee

Ed Johnson is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,338 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,980 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I recently sold a property. When I inherited it from my
I recently sold a property. When I inherited it from my mother, I had to pay inheritance tax on it at a value of $137,000 ten years ago. The property recently sold for $80k. Can I deduct the loss in v… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
My wife has inheritance in turkey property her father left
My wife has inheritance in turkey property her father left her.turkey says she must pay taxes on on property she inheritance before they give her property! … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Tax Question. TX. Inherited $82k 401k. Decedent was not
Tax Question. TX. Inherited $82k 401k. Decedent was not retirement age.What is the tax implication if the $82k 401k is cashed by a 81yr old on $1550 Monthly SS as only income? What is the tax implicat… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Is there inheritance tax in California. I cousin of my mom
I cousin of my mom died in California. He did not have a will. So we are heirs since my mom has already passed away. Do we have to pay taxes on the funds that we received? … read more
Carter McBride
Carter McBride
LLM
262 satisfied customers
Inherited art value was 134,000 at date of death. This is
Inherited art value was 134,000 at date of death. This is the "post-blockage discount value". 3 paintings sold for $938,000 after consignment fees.Do people often get several appraisals?Is this gain j… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,980 satisfied customers
Is inheritance income from Germany subject to US taxes?
Is inheritance income from Germany subject to US taxes? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
My wife inherited an investment through a living trust that
My wife inherited an investment through a living trust that was liquidated due to a sale of the investment property by an investment brokerage. It's my understanding that since this was inherited thro… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
Inherited property in 2014 and sold it in 2016. I have
Inherited property in 2014 and sold it in 2016. I have questions about filing the estate's taxes as well as how to report the capital loss on my personal taxes … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,804 satisfied customers
My wife inherited a piece of rental property from a
My wife inherited a piece of rental property from a revocable trust that her parents had set up after her father and brother died her mom did an amendment that made her trustee and sole heir. Her mom … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Under the IRC, a taxpayer who inherits property gets an
Under the IRC, a taxpayer who inherits property gets an automatic, income-tax-free, step-up in basis for that asset. That is, the heir uses the property's value on the deceased's date of death (or 6 m… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
What are tax rules for an inherited Roth IRA, GA, the
what are tax rules for an inherited Roth IRA JA: Since estate law varies from place to place, can you tell me what state this is in? Customer: GA JA: What documents or supporting evidence do you have?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
We have $400,000 in capital gains for the sale of our
We have $400,000 in capital gains for the sale of our California home of … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have 160K from an inherited on demand IRA distribution for
Hello, I have 160K from an inherited on demand IRA distribution for 2016. My home is free and clear. My property taxes on it are 14K. I donated 25K to charity. Based upon these figures, I have no othe… read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
1,083 satisfied customers
What is the capital gains tax on proceeds of the sale of a
What is the capital gains tax on proceeds of the sale of a home? … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
We have two parties is sale of property they inherited .a
We have two parties is sale of property they inherited .a court based the amount at tax assessment of 156000 at their mom's death value was 84000 which is a 72000 gain. At a hearing a judge ordered a … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,282 satisfied customers
Referring to capital gains and inheritance laws in Peru: We
Referring to capital gains and inheritance laws in Peru: We will be inheriting some properties from my mother in Peru which we intend to sell within the year. Since we inherited the property at it's c… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x