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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7122
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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My grandmother died in 2011. She had a trust, and her only

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My grandmother died in 2011. She had a trust, and her only asset in the trust was a house which was also sold in 2011. Her original cost of the house in the '70s was $40,000 but it was sold for over $400,000. When preparing the 1041 for the trust, how do I report the sale of the house?

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

Sorry to hear that you had to go through losing your grandmother; it is never easy.

Stephen E. Grizey :

What was her date of death and what was the date the house was sold?

Stephen E. Grizey :

Was it her primary, personal residence?

Customer:

Let me go get that information. I'll be right back. It was her personal residence.

Stephen E. Grizey :

Was she single when she died?

Stephen E. Grizey :

Who is the beneficiary of the trust & how many beneficiaries are there?

Customer:

Yes, she was single. The house was sold on 6/29/2011. Her date of death was 6/26/2011.

Customer:

I

Stephen E. Grizey :

Wow. Were there significant additional assets in her trust?

Customer:

I'm sorry - date of death was 5/26/2011. Her house was the only asset. Also, I just had a repair person come to my house (what timing). Can we get back together in about an hour?

Stephen E. Grizey :

Sure, you probably don't owe any tax

Customer:

Thank you. How do I get back to you?

Stephen E. Grizey :

We will leave this "chat" open & just type that you are ready when you return

Stephen E. Grizey :

I'll look for you around 3:30 your time just in case

Customer:

Hello, Mr. Grizey. I'm back.

Customer:

Hi, again.

Stephen E. Grizey :

Are you there?

Stephen E. Grizey :

We seem to have lost part of our conversation;

Stephen E. Grizey :

However it really doesn't matter; we are better off in Chat than switching to Q/A format

Stephen E. Grizey :

are you getting this??

Customer:

Yes. I'm back but not 100% tied to the chat yet, but let's continue if possible. This shouldn't take too much longer. Thx

Stephen E. Grizey :

OK, now I presume the trust was a living revocable trust while she was alive, meaning she could control the house, live it it, etc.

Stephen E. Grizey :

what does not 100% not tied to chat yet?

Stephen E. Grizey :

Hello?

Customer:

Yes, that's correct.

Customer:

I'm still dealing with a home repair person.

Stephen E. Grizey :

Ok, well since the property was sold so soon after death, the selling price can be used as the fair market value of the house at the date your grandmother died; which means no capital gain and you may even have a deductible capital loss created by a real estate commission, closing expenses, etc.

Stephen E. Grizey :

Who is/are the beneficiaries of the trust?

Customer:

Me and uncle.

Stephen E. Grizey :

Ok well the sale is just reported on the 1041 of the trust's schedule D;

Customer:

Okay - I should be back 100% now. I was hoping the FMV could be set at the selling pricing. Therefore, do I still need to complete and file a 1041 to report the proceeds of the sale, but just show the cost as the FMV? That's what really confused me because the return looks like a $0 return.

Stephen E. Grizey :

When someone dies like this, the gain or loss is considered long-term, no matter what the actual holding period and the property is consider as "property held for investment"/.

Stephen E. Grizey :

Well, did you pay a real estate commission?

Customer:

Yes - $25,000.

Stephen E. Grizey :

Then you actually have a deductible loss on the sale, which is passed on to the beneficiaries via the "other information" on their K-1s in the final year of the trust;

Customer:

Okay, very good. So I still complete a 1041, but with a loss that's passed on to me and my uncle. I was getting confused because of the reading I did regarding an election not to use step us basis as the FMV. But in this situation, I can use the FMV as the step up basis, correct?

Stephen E. Grizey :

Yes, but that's why I asked you what else she left;

Customer:

There were only very old household items (furniture, etc.). No stocks, jewelry, cars or other properties.

Stephen E. Grizey :

Right, so there's no issue.

Customer:

Okay. Thank you very much. I think I was just reading too much and giving it way too much thought.

Stephen E. Grizey :

You can forget all that stuff, naturally; it is too small to worry about; no tax ; no problem;

Stephen E. Grizey :

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Customer:

Thank you very much!

Stephen E. Grizey :

ok, you are welcome

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