USA Form 1041

CAS

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Dec 28, 2023
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A couple of friends own a home together and put it in a living trust with the stipulation that if one dies the other can continue to live there until they die or become disabled. One friend, Abby, dies in 2020 and the other friend, Gail, lives there until she needs to move into assisted living so the home is sold. The proceeds are divided between the 2 owners or grantors to the living trust, Abby and Gail. When Abby died in 2020 they did an appraisal of the property at that time. Now that the home has sold Abby will close out her estate and distribute the remainder of the cash left from the home sale. Do we report the sale of the home on Form 1041 and show Abby's half at the original basis or does the trust receive a step up in basis? According to the trust documents the 1/2 interest of Abby is given to Gail when she dies but then reverts to the trust on disposition. Does the exclusion on sale of a primary residence apply here at all? If we use a step up in basis we are still looking at a small capital gain amount of roughly $15,000. Does the trust pay tax on this with the final return? If so, is it necessary to report the amounts received by the beneficiaries? They will not be taxable as it is well under the threshold. Please ask if further clarification is needed.
 

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