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Home being sold through a living trust - how is the money taxed?

Houston, TX |

I'm on the title of my father's house via a living trust. We're going to need to sell the house to help pay for his health care and to help him settle into a rental afterwards. How does this money end up being taxed?


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Attorney Answers 3


  1. Based on your question, I'm assuming you are the trustee on a revocable living trust your father (the grantor) established and transferred his home into. Now as the trustee, you want to sell the home.

    I can't give you an exact answer without seeing the trust, but most revocable living trusts are "Grantor" trusts - for IRS and tax purposes the trust is viewed the same as the grantor. If you sell the home, the profit will be capital gain that your father will have to report on his personal tax return. While he is alive, any income on trust property gets reported on his personal tax return.

    Again, this is only a general rule. Since I haven't reviewed the trust document, don't act on my advice without first having an attorney or CPA look at your specific situation.


  2. The tax treatment upon sale will depend upon whether the trust is a revocable trust or an irrevocable trust. You will also have to determine whether you are on the deed alone or with your father.

    I would suggest you take a copy of the trust document along with the current deed to a qualified estate planning attorney before you take any further actrion regarding sale of the property.

    If you find this answer helpful, please anwer "yes" where indicated. Best of luck.

    IRS CIRCULAR 230 NOTICE: Any tax advice contained in the body of this message (or in any attachment) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. If you would like to receive written advice in a format that complies with IRS rules and that may be relied upon to avoid penalties, please contact the author of this message. The opinions expressed in the preceding message issued by the above sender, if any, are hypothetical in nature with respect to any person other than the intended recipient. They are not intended nor should they be construed or relied upon either as a legal fact or opinion by an unintended recipient, both of which may require legal research or may entail differences of opinions. Furthermore, the author of the above statements makes no claim of legal authority or legal assurances with respect to an unintended recipient. The sender takes no responsibility for reliance on this message by any one without specific, actual and not implied, independent authorization by the sender to so rely.


  3. Generally the house is taxed as though it was owned by your father presuming it is in fact a living trust with your father's social security number. Under Section 121 you would be able to avoid the first $250k of capital gains most likely. He had to live there for two of the last 5 years or qualify for a few exceptions. Most people qualify. Since a Rev Trust is treated identical to the person who has the power to revoke it, the trust should qualify. Here is a pretty good read: http://taxes.about.com/od/taxplanning/qt/home_sale_tax.htm

    You should check with your attorney to make sure it is not an irrevocable trust as that would change the answer dramatically.

    In any event you should speak with a medicaid attorney to plan for your fathers estate. There are some techniques that may fit your situation if we had a bit more information.

    Disclaimer: The foregoing answer does not constitute legal advice, is provided for informational and educational purposes only for persons interested in the subject matter. Each situation is fact specific and may be subject to state specific laws. Without a comprehensive consultation and review of all the facts and documents at issue it is impossible to evaluate a legal problem fully. This answer does not create an attorney-client relationship. No Tax Advice - Circular 230 Disclaimer - Any information in this comment is not intended to constitute a comprehensive and complete tax consideration analysis, and may not be used by the taxpayer to eliminate or reduce penalties by the IRS or any other governmental agency, nor for the purpose of promoting, marketing or making recommendations to other persons on any tax-related matters.

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