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Old 02-08-2014, 02:53 PM
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Sale of real estate held in trust

I am inheriting real estate from my grandmothers trust along with my two siblings and four aunts and uncles. My siblings and I have come to an agreement with one aunt to sell our portion of the property when it comes out of trust. She made a down payment to each of us in 2013, with the rest to come when titles and deeds are complete, sometime presumably in 2014. This is land that is selling under fair market value.

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? Is the property valued from the time of my grandmothers death six years ago, or when it comes out of the trust?



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Old 02-08-2014, 09:35 PM
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Originally Posted by Blake View Post

#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.



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