Sale of personal home by a Trust

[jesdq1]

Can a loss on the sale of a personal house (home of decedent and in the trust) be passed on to the beneficiaries on the K-1s? The FMV of house, selling price, and expenses of sale generates a loss. Or, because the home was the primary residence of the deceased, does the loss stay with the Trust and not passed through to beneficiaries?  

[sjrcpa]

Is this a final trust return?

[jesdq1]

yes

[sjrcpa]

Then everything passes out to the beneficiaries on the K-1s.

[jesdq1]

Thank You.  So, it is not relevant that the house sold was the primary residence of the decedent? 

[sjrcpa]

Sold after death, right?

Did anyone live in it after grantor's death?

Trust was of a kind that the house got a step up to date of death FMV?

[jesdq1]

Sold after death?   Yes

Did anyone live in it after grantors death?  No  

Not sure if I understand the third question. "Trust was of a kind that the house got a step up to date of death FMV? " Are there certain trusts that do not allow a stepped-up cost basis?  It was a revocable trust. Thank You

[sjrcpa]

Yes there are certain trusts and transfers thereto where there is no step up.

Sounds like you have a plain vanilla Revocable/Living/Grantor Trust where the assets get a step up upon the death of the Grantor.

After death, the assets are deemed to be held for investment, in the absence of other facts saying they are not.

[jesdq1]

It is my understanding that irrevocable trusts do not allow the stepped-up basis, I was not aware that other kinds of trusts do not allow a stepped-up basis.  You are correct I have a revocable trust. The fact that the house was the personal residence of the grantor...does that have any effect on the stepped-up basis? Thank You    

[sjrcpa · Accepted solution]

No it does not.

[jesdq1]

Thank you for your help 

[sjrcpa]

You're welcome.

[fwcurley]

What if the house was sold to one of the beneficiaries? Can he and/or the other related beneficiaries claim  the loss? 

[BobKamman]

Maybe.  The answer would rely heavily on "facts and circumstances."  First question, but not the last, would be whether the beneficiary had been living there already.  

[fwcurley]

Yes, he was living there with his mother, the owner of the trust, until she passed. His siblings did not live there. 

[BobKamman]

I would find it difficult to claim that a loss was caused by an arm's-length transaction.  

[qbteachmt]

"he was living there with his mother, the owner of the trust, until she passed. His siblings did not live there"

Then he bought out the other owners at what got determined as FMV, right? Maybe it was at a discount (he lived there already, inconvenient for the others to try to market the property, etc), but that's not really a loss to him or the others.

It's a stretch to expect you could buy your own residence from your siblings at a reduced price and have everyone claim it as a tax loss.

[fwcurley]

They haven't done it yet, but he is buying it from the trust for the full assessed value. The loss would come from the closing costs, Then the trust will distribute the proceeds to the 4 siblings. Another question has come up. Since the trust is irrevocable, stepped-up basis might not apply, and nobody knows the mother's basis since the parents built the house themselves in the 1950's. It's assessed at $290,000 now.

[sjrcpa]

Also consider whether related party rules would preclude claiming a loss.