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Real Estate sale by Irrevocable Trust (California)

San Diego, CA |

As trustee of an irrevocable grantor trust, I plan to sell a home with the approval of the two beneficaries. The property was originally gifted to the trust. For Capital Gain Tax calculation, will the basis be stepped up to current market value or the original basis in the home 30-years ago?

Thanks for your advice.

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Attorney answers 3


It depends on whether the assets of the trust were included in the taxable estate of the decedent/grantor. If the grantor retained certain ownership rights or reserved certain powers under Section 2036-2039 of the Internal Revenue Code, then the trust assets were includible in his estate. In such case there would be a step up in basis.
Otherwise, the trust would take a carryover basis.
You need to have the trust document (and the estate filings) reviewed by an experienced estate planning attorney to get the correct answer.

Hope this helps.

Mr. Fromm is licensed to practice law in PA. The response herein is not legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received.


When a gift is made, the recipient (in this case the irrevocable trust) takes a basis equal to the donor's old basis. If the donor is still alive and the trustee sells the home, there is no step up in basis. If the home is sold after the donor's death, the property will only get a stepped up basis by virtue of the donor's death if the property was includable in the donor's estate for estate tax purposes. Some irrevocable grantor trusts have 'defects' in them that were put there intentionally so that the income of the property is taxed to the grantor for income tax purposes, but so that the property is not included in the grantor's estate for estate tax purposes. You and your attorney must examine the trust (assuming the grantor has died) to determine whether the grantor retained any rights in the trust that would cause it to be included in the grantor's estate for ESTATE TAX PURPOSES.


I agree with attorney Fromm. It could go either way. This entirely depends on the structure of the trust. Have a tax or estate planning attorney review the document for you,

Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.