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My elderly mother is recently widowed. She is selling her…

My elderly mother is...

My elderly mother is recently widowed. She is selling her house. The title is under an LLC. She is the only administrator. Will she be tax exempt from the sale of her house?

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The escrow co. with make out a check to the LLC. Will the irs want her to pay tax based on the 1099?

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Answered in 3 minutes by:
3/22/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,674
Experience: Taxes, Immigration, Labor Relations
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The question is - if LLC is a single member LLC ? - and if she is the member?

If yes - all income and expenses realized by the LLC are reported on her tax return.

If however - the LLC is a separate taxing entity - the situation is different.

You wrote - She is the only administrator.

But we need to know who owns that LLC?

Lev
Lev, Tax Advisor
Category: Tax
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Customer reply replied 29 days ago
She and dad were the members. She was the administrator. Dad died.
The LLC was only formed to show title for the house. It had no other function. It is no longer functioning, except to close title on moms house. Escrow wants EIN for 1099.
The LLC was put under family trust 5 years ago.
Phone call session started

Let me summarize our conversation and proposed treatment for tax purposes based on your information.
.
So the property was titled in the LLC for legal protection only.
The LLC never realized any income and never filed income tax return.
The LLC was transferred to the trust - and the trust was a single owner of the LLC.
As such the single member LLC (SMLLC) is classified as disregarded entity for tax purposes.
The trust was credited as revocable living A-B trust where both spouses are grantors.
Such grantor trust is ignored for income tax purposes - and all assets are treated as owned by the trust.
.
An A-B trust is divided into two trusts upon the death of the first spouse.
In general a half of the assets belonged to the deceased spouse is considered as inherited - and as such getting stepped up basis.
That is based on section 1014
https://www.law.cornell.edu/uscode/text/26/1014
However because Arizona is a community property state - the FULL value of the property is getting stepped up basis.
.
So far - because ()LLC was a SMLLC and ()that was grantor trust --> the property titled to the LLC for estate tax purposes is included into decedent's estate
and because () that is a community property state
--> we are getting full stepped up basis equals to the fair market value at the time the decedent passed away.

So far - when the trust divided into two trusts upon the death of the first spouse -
the property will jointly owned by
-- trust B or the decedent's trust - assumable 1/2 of the property
-- trust A or the survivor's trust.
Regardless - we still have stepped up basis - and
when the trust reports the sale - it will use that basis and tehgain will be eliminated.
.
The issue will be with reporting because
- when EIN was assigned to the LLC it was not a SMLLC - and EIN was assigned as to the partnership.
In general when the LLC was transferred to the trust - we shoudl apply for a new EIN associated with the trust's EIN.
So when the sale transaction will be reported by the title company on form 1099S using LLC's EIN
- but the sale transaction will be reported on the trust's tax return under different EIN
- we will need to attach a note and explain circumstances and reasoning
- I also suggest to attach a copy of form 1099S

I think that basically all issues we discussed ans the strategy outlined during our conversation.
There might be some additional details come up when you will work on implementation.
If you will be using a local CPA - feel free to provide all that information for consideration.

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