The real estate (single family home) is held in a trust with no mortgage (owned free and clear.) The trustee (who is the person that originally transferred the home into the trust) wants to transfer the home to someone else for services rendered on the trustee's personal farm. The services on the farm have been performed over the last several years and include maintenance, upkeep, management, etc. The value of the home is approximately $80,000.
Allow me to address the tax issues. For tax purposes, the home is considered to be sold for $80,000 and the trust is deemed to be paying a fee of $80,000. The trust will have gain or loss on the sale of the real estate determined by comparing the $80,000 to the tax basis of the real estate. The trust may have a deduction for the $80,000 depending upon the nature of the services provided.
The person providing the services will have income of $80,000 and a tax basis in the real estate of $80,000.
This is all a bit complex. Prior to finalizing the structure of the arrangement, you should definitely consult with the CPAs and/or tax attorneys who will be preparing the tax returns for the trusts, its beneficiaries, and the providers of the services.
Marty Davidoff, [email protected], 732-274-1600. This answer is provided for general information only. You should seek advice from an attorney or tax professional.
It is as if the person that performed the services was paid the $80,000 and then purchased the property from you. Therefore, the service provider will have income of $80,000 and a tax basis in the property of $80,000. The trust will be deemed to have sold the property for $80,000. This may result in a gain or loss depending on the tax basis of the property. This is a complex enough transaction to engage the services of a tax professional.
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.
I agree with the preceding, except the type of trust (revocable vs irrevocable) and what the indenture says is important. I assume the trustee has the power to transfer the property out of the trust and also the beneficiaries have no rights to stop the trustee. Do you object to the transfer? Note that the gains in the trust may trigger an income tax to the trust at 15%. I assume the home is a personal residence and will not be taxed under the $250,000 homestead exemption?
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