Originally Posted by Blake
#1;My question is will I owe income taxes in 2013 for this down payment, and how do I figure capital gains on this property sale inherited through a trust?
#2;Is the property valued from the time of my grandmothers death six years ago, or when it comes out of the trust?
#1;I guess it depends on the situation; if the sale is the installment sale, then under the installkment method of reporting, gain from the sale of investment or regular real property is prorated and taxed over the years in which payments are received.
#2;it is valued when you received it regardless of the grantor’s death.Normally, you, as a heir, receive a stepped up basis on most property transferred to you upon the grantor’s death, regardless of whether the transfer is by will, trust, or other means. That stepped up basis is the FMV on the date of the grantor’s death.
As the r/e was in herr name, it will receive a step up in basis upon her death. If it is placed in the living trust, it will likewise receive the step up. The reason why is because it is what is known as a grantor trust.
However, When a living person establishes an irrevocable trust, the property transfer is a gift. The trust's basis is donor's aslongas fmv of the gift was higher than basis; or vice versa. If fmv is lower than cast ,then the basis for a donee is fmv, not original basis,with the usual adjustments and limits. The subsequent death of the grantor is irrelevant, so there will be no step-up whether the property is held or distributed.