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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
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Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Mother in law passed away. My wife is the executor and sole

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Mother in law passed away. My wife is the executor and sole beneficiary. Estate size is $160k (house at $120k, bank accounts at $40k). House and bank accounts are in a revocable trust. My wife is the co-trustee of everything in the trust and co-signer on all bank accounts. We are taking immediate possesion of the bank accounts so that any interested generated after the death will be under $600 hoping to eliminate need for filing 1041. There are no other income streams.
Question #1-are my above assumptions correct to be able to do all that and avoid the form 1041?
Question #2-When we sell the house(sometime this year) and if there is either a capital gain or loss from the stepped-up value do we take that on our own 1040 or does that have to be reported on a 1041 which will have no income and which we are trying to avoid filing?
Question #3-to establish stepped up value on the home, can we use comparable sales in the area/tax roll asessment or do we need a formal appraisal?


1 Absolutely. Yes you are correct. That's the whole purpose of the Revocable trust.


2. Since I take it that the real property was in the revocable trust, you might want to transfer it to your wife at the time you sell it & then to the buyer. Your wife's tax basis will be the same as the trust's basis. You should consider getting an "opinion of value" from a real estate broker & make sure it is at the highest & best use, as if it is close or at the selling price, you'll actually have a deductible loss (for any selling expenses, commissions, etc.) as the property will be considered as "held for investment" as it was acquired (inherited) through the trust reason of death of the grantor.


3. Not formal appraisal in the circumstances.


One final thing, you probably need to check with your lawyer or your State Department of Revenue (or whatever they call themselves) to make sure you don't have to obtain a release or file an affidavit stating that there was no Ok estate or inheritance tax due on your mother-in-law's estate as often there is an automatic lien on real property interests when someone dies, even though the property is in a trust.


Many states including mine, have this in place.


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Customer: replied 7 years ago.
RE: question #2. Yes, the house is in a revocable trust as well. Since it is probably likely that there will be a loss on the sale of the house due to the fees, commisions, etc. Do we take that loss (or gain if there is one) on our 1040 thus reducing our own tax liability? Is the reason to transfer it to my wife and then the buyer to avoid having to take the loss (or gain) on a 1041? if not, what is the purpose of the extra step transferring to her and then the buyer? Thanks


Yes that's the reason. That loss will be a long-term capital loss (no matter how long you keep the property - that's just the way it works in this circumstance).


I'd do it (transfer it to your wife) now if you could do it without paying a lot of $ on transfer (deed) stamps. The sooner you get rid of the trust (you can't use it for anything, put anything in it, etc.), the better off you'll be, plus you can then make sure the title is clear before you actually go to a closing.

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