Originally Posted by kinosh
Background: Female gets married, has two children, gets divorced (keeps the house), writes a revocable Living Trust with the children as beneficiaries, then dies in 2012 while the children are minors. The house goes into the trust (now irrevocable) and the ex-husband moves into the house to care for the children.
Question: The children, now adults, want to sell the house ($1.1M). The house is still in the trust. What is their basis? The original purchase price ($400k), the value when their mother died ($740k), or something else?
Question: The children, now adults, want to sell the house ($1.1M). The house is still in the trust. What is their basis? =========>> Assets that have been conveyed into a (ir)revocable living trust do get a step-up in basis when they are distributed to the beneficiaries after the passing of the grantor;basis is an individual gets in property he inherits from another. This is an important area and is too often overlooked when families start to put their affairs in order. The general rule is referred to as the ?step-up? basis rule. That is, the heir receives a basis in inherited property equal to its date of death value. So, for example, if the basis of the house( original purchase cost) was for $200K and it's worth $5 00K at her death, the basis is stepped up to $500K ,NOT $200K,in the hands of her heirs and all of that gain escapes income taxation forever.
The original purchase price ($400k), the value when their mother died ($740k), or something else?=====> When a beneficiary inherits property from a decedent, the asset receives a step-up in basis to its value on the date of deaththen, its basis is $740K; ALSO if they inherit the home and used it as primary home then they qualify for the $250k/$500k home sale tax exclusion. The tax law provides homeowners with a very generous tax exclusion when they sell their property. Up to $250K of any gain from such a sale received by a single homeowner is tax free