1041 - Sale of primary residence by trustee

[Daven]

Situation -  Grantor created a living trust in 2014 and the only asset in the trust was his primary home.  He passed away in 2019 at which time the living trust became an irrevocable trust.  The Trustee sold the property in 2021.  With CA property values going crazy, there is gain above and beyond the step up value.  Questions:

1.  Can the Trust get the benefit of $250k of Sec. 121 exclusion.  Some articles suggested that the exclusion is available to Trusts if it would have been available to the Grantor.  

2.  If "yes" to Q1, will this be on top of the step-up?

3.  Lacerte has no check boxes for sale of home and the use test on the 1041 returns like it has for the individual returns.  Any suggestions on how to put it thru the software if this is a legitimate deduction?

4.  For any residual capital gains, can it be distributed to beneficiaries, or does the Trust have to pay the taxes at the highest rate.

Thanks in advance for your participation.

[sjrcpa]

It was not the trust's principal residence so no exclusion. This is the short answer.

[IRonMaN]

Actually "nope" would be the short answer 😀

[Daven]

Please review this article:

https://pollockfirm.com/section-121-deduction-qualifying-trusts/

Also review the 

td9030.pdf - Internal Revenue Service

[sjrcpa]

I'm not going to do the research but I think that refers to a Grantor Trust selling the house the Grantor lived in while the Grantor is still alive and living in the house.

[TaxGuyBill]

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@Daven wrote:

Please review this article:

https://pollockfirm.com/section-121-deduction-qualifying-trusts/

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Have YOU reviewed that article?  That is discussing Revocable Living Trusts.  When the taxpayer dies, that completely changes.

[IRonMaN]

Too many times folks present evidence here that they either haven't read or they read it but didn't comprehend it.  Sometimes you just see what you want to see when you read.

[Daven]

I spoke with a tax attorney and got an answer that's different from the responses I got on this forum.