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.
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.
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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.
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