How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 15831
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

My wife inherited a piece of rental property from a

This answer was rated:

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 died on Sept. 12th. We are within a day of closing on selling the piece of property but is
JA: The Accountant will know how to help. Is there anything else important you think the Accountant should know?
Customer: But it is being titled as being sold by the trust. Will that affect her stepped up basis at tax time

Hi My name's Lane.

hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.


If the trust is selling the property, then it's the trust that receives the step up in basis.


So as long as closing costs are added to basis, and enough time hasn't elapsed to have prices rise, this is likely a loss for the trust. (By the way, the trust became irrevocable at the last grantor to die)


Hence you may need to file a 1041 (Trusts income tax return) because any 1099-S generated at sale time will cause you to need to show the basis

Once that's done, distribution the asset to your wife is not a taxable event at all ... simply a re-titling of the assets.


You CAN also, if this is the final year of the estate, pass out any capital loss via the 1041's K-1 to your wife so that she has the capital loss to use (or carryforward if in excess of 3000 and she has no capital gains)

Customer: replied 1 year ago.
It says i the trust that the property passes to her upon her mothers death. We just dont want to have to pay capital gains taxes on this next year. What do we need to do to avoid that
Customer: replied 1 year ago.
no lets continue the chat

You can either re-title to her before selling (with the trust giving that authority) OR let the trust sell it and re-title to her after the sale.


Either way th step up in basis applies.


Trusts get the step up just as individuals do


There's no capital; gain either way (*UNLESS the property is being sold for more that the FMV as of the date of death plus selling costs - selling costs are part of basis ... so added to the Date of death FMV to get to basis)

Sorry about that automated phone offer ... site does than ... did not come from he

Customer: replied 1 year ago.
as trustee of the trust she could have it deeded to her and then have it sold in her name and get the stepped up basis
Customer: replied 1 year ago.
how can she re title after the sale
Customer: replied 1 year ago.
Are you still there

Yes to your fust question ... and no, retitling AFTER the sale isn'tmpossible

The sale itself re-titles to the buyer. But she can re-title as the trustee, as per the language of the trust OR let the trust sell and distribute the cash to her ... either way there's a step up in basis

Customer: replied 1 year ago.
But if we wanted to close tomorrow and the document is in the trusts name we would have to file something that allows the trust to get the stepped up basis and not her for purposes of not paying capital gains

Again, trusts get the stepped up basis as well

Customer: replied 1 year ago.
We just want to avoid paying capital gains on the sale of this property

Whatever entity inherits the asset (trust, corporation, individual) gets a step - up in basis.


If the asset is sold for less than FMV on date of death (plus selling costs - so there's actually likely a loss here, not a gain) there's no gain

Assets that were conveyed into a living trust get a step-up in basis. This is because of the fact that the grantor/trustee retained incidents of ownership while he or she was still living. The inheritor wouldn’t have to pay capital gains tax on the appreciation, but the inheritor would be responsible for any future appreciation.

You will not pay capital gains here

Customer: replied 1 year ago.
The entity that inherits it per the trust is my wife. But the abstract company says it has to be sold as though it is still in the trust because it has not been deeded over to her. But the trust itself says that upon her mothers death the assets are to be distributed to her

I understand ..., no gain either way. Either the trust sells and has no gain becasue of the step-up that it gets OR the individual does if you re-title it before sale

Said differently, since your wife didn't get the retitling done, the trust is the selling entity (but again, the trust will have no gain) AND will have the case to distribute to your wife

Customer: replied 1 year ago.
if we sell it either way and then proceed to use the money wwe should have no concerns that we will owe capital gains and lose the stepped up basis

That's correct. This happens ALL of the time. Trustee doesn't do a good job of getting re-titling done so it's the trust that sells ... either way, there's no gain here


Customer: replied 1 year ago.
She's the trustee and we did not realize when we were dealing with her moms funeral that we needed to do that

I know... again, no gain ... just don't know any other way to say this - I gave you the tax law citation above

Lane and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thanks much

You're very welcome ... you'll be fine here, no gain