The Listen to Lawrence Letter: Selling a house that is in a trust

CLIENT QUESTION:

If my condo is an irrevocable Medicaid trust, can I use my capital gains $250,000 deduction when I sell the house? Will the trust have to pay the capital gain taxes when it is sold?

MY RESPONSE:

We design our trusts as grantor trusts, a trust that the IRS ignores. It is as if you still own the house for income tax purposes, so you keep your $250,000 capital gain exclusion. However, if there is still a tax due, you have to pay it, not the trust.

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