The Listen to Lawrence Letter: Capital Gain from the sale of a second home in the trust

Dear Clients and Friends:

Here is a capital gain question regarding the sale of a second home in the trust:

CLIENT QUESTION:

Thank you for your posts. Agree with you about Florida. LONG ISLAND is the best!

Now, we own a home in Florida we inherited in 1993. It was put into our irrevocable trust years later when we established one. We never rented it, vacation use only maybe 2 months a year. We are contemplating selling it. The only question I have is the capital gains tax paid from the year we inherited the house (1993) or the date we transferred it to the irrevocable that was many years later? So much to learn about sales, taxes, trust, etc.

MY RESPONSE:

When you sell capital assets, like real estate or stock, you pay capital gains tax on the profit above your basis. Basis is established by what you paid for it (plus capital improvement on real estate) or the value at the time you inherited it. In this case, you inherited the Florida property in 1993. The value at that time is your basis, plus any capital improvements you added to the property over the years. The basis is NEVER the value at the time the property is added to the trust. When the property is sold, you will be responsible for this capital gains tax, not the trust.

I hope this helps! Please forward this information to your friends and relatives to share these informative answers to some very commonly asked questions.

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Until next time,

peace, health and happiness,

Lawrence Eric Davidow