| Sale of a house in an irrevocable trust…another question…read on:
CLIENT QUESTION:
Hello Lawrence,
My parents put their house in an irrevocable trust. It is the only asset in their irrevocable trust. My mother is still alive, and we are talking about selling the house. If the house is sold during her lifetime, are there any exclusions allowed for her at tax time? How does the irrevocable trust mitigate the capital gains tax? I’m guessing the step-up basis is one way, and do the answers change if the house is sold after she passes?
MY RESPONSE:
This is a very typical situation. Both spouses set up an irrevocable Medicaid trust, and the survivor wants to sell it. From a capital gains point of view, the answer is that there was a step-up in tax basis on the husband’s half of the house at the time of his death. On the wife’s half, she can still use her $250,000 exclusion. Also, if she sells the house within 2 years of his death, she can also use his $250,000 exclusion. Pretty cool.
I hope this helps! |
