Loss on sale of inherited house

Forum|Forum|4 years ago
August 12, 2021
2 replies
23 views

Clients Mother put her house in a Revocable trust in 2004, and retained a life estate. She passed away in 2020, and the house was sold a couple months later. The 1099-S has my clients SSN as the Tax id number on the 1099-s, but the name attached to the 1099 -s is the name of the trust.

I am being told by my clients lawyer that my client was the sole settlor, sole trustee and sole beneficiary of the trust.

My question is can she take a loss on the sale of the house? The FMV at time of death and sale price are the same. The loss occurs when I include the closing costs.

The home was not used personally by the family between the date of death and the sale date.

Thank you in advance for your help.

Lacerte Tax

This topic has been closed for replies.

T

TaxGuyBill

Level 15

@jlew1229 wrote:

The 1099-S has my clients SSN as the Tax id number on the 1099-s, but the name attached to the 1099 -s is the name of the trust.

My question is can she take a loss on the sale of the house? The FMV at time of death and sale price are the same. The loss occurs when I include the closing costs.

The TRUST can take the loss, which will pass on to your client.

The 1099-S should have the EIN of the Trust, not the SSN of your client. You may need to report it, then 'back it out' to net zero, then report the loss from the Trust K-1.

BobKamman

Level 15

Sounds like your client will sign anything put in front of her, so write a check to yourself for $50,000 on her checking account, have her sign it and take the next couple months off.

She was the settlor of the trust? So this wasn't Mom's revocable trust. Mom told her "sign here" and now she's a settlor (grantor), trustee and beneficiary of her very own trust. Gets it out of Mom's name so Mom can qualify for taxpayer-financed welfare.

Then her trust discovers it owns a house in 2020. The people at the escrow company (or the lawyer) ask for her SSN and she obliges them. They ask her to sign a sales contract and escrow instructions and a deed, and she complies. Who cashed the check? Was there ever a bank account for her trust?

Why would the daughter get stepped-up basis, if the mother gave away the property 16 years ago?

joshuabarksatlcs

Level 9

No comment on the $50K check suggestion...

The facts given weren't 100% clear, but with the "life estate retention" and the attorney's opinion that the Daughter is the "sole settlor", it could just be that the Mother had transferred the property to the Daughter's, and the property was held under the Daughter's Revocable Trust.

If so, upon the Mother's death, the life estate terminated and Daughter continued to be the owner of the house, with the title under her (the Daughter's) Revocable Trust.

If the above were the facts, I would agree - NO stepped up basis.

Further, the daughter may even have a capital gain because her basis (assumed fact: the transfer was a gift from the mother) could very well be the lower of the FMV at the transfer or the Mother's basis. Check the basis rules for gifts.

Regardless, it's time for my daily bourbon regimen. And I digress.

I come here for kudos and IRonMaN's jokes.

BobKamman

Level 15

Bourbon? Guess that's OK if you don't have Scotch whisky available. There is Section 2036, which might allow stepped-up basis after all (but check the paperwork).

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