My brother and I are equal beneficiaries of the family home that was held in a revocable trust. The house was sold this year. I got a EIN for the trust, and a 1099-S was issued for this number. However, the sales price less the adjusted cost basis (FMV at death plus sales costs and fix-up expenses), result in a $50k loss. Do I file a 1041 for the trust showing a Sch D long-term capital loss of $50k and then issue a k-1 for $25k to my brother and one to myself for inclusion on our individual returns? This would allocate the loss to the beneficiaries. Is this correct? Or do I not file a 1041 and have the beneficiaries each report 1/2 of the loss directly our individual returns? I hope the trust gets the "step-up" in basis and that the beneficiaries can take advantage of the investment loss.
asked 16 Jul '10, 20:27
If the date of death is 2010, there is no "step up" basis. Ref IRS website, http://www.irs.gov/businesses/small/article/0,,id=224515,00.html. The basis is the lesser of the decedent's basis or fair market value. Plus once the grantor dies, the trust automatically becomes irrevocable. So file the 1041.
answered 19 Jul '10, 15:11
K Weber CPA
If the date of death is in 2010: There is a $1.3 million basis step-up for every estate in 2010, http://www.irs.gov/businesses/small/article/0,,id=224519,00.html (This is under the current law and may be subject to change), however with the estate tax in flux I think the best answer is to extend the 1041 and leave the house in the name of the trust for now.
If the date of death is 2009: Then yes the house does get the step up, however it is likely still a personal residence in the eyes of the IRS and losses related to the sale of a personal residence are non-deductible. However, I would seek professional advice on the issue to limit your liability as the personal rep/ trustee.
answered 22 Jul '10, 22:58
Both Will and K have referenced the step up issue so I won't address that except to say that you NEED to check those regs. You may or may not get some step up and the calcs are tricky so be careful.
I have one question for you - did either you or your brother ever live in this house?
If either of you lived in the house that person's use will be considered personal and they will NOT get any loss on the sale.
Many homes sold after the owner die result in a tax loss for no reason than the costs of sale add to the basis, which usually mean a tax loss. Ordinarly whether you report the sale on a 1041 or on your personal returns doesn't matter. However, you have already obtained a TIN for the trust AND the 1099-S was issued to this number. This indicates two things:
1 - that it was NOT the sale of a personal residence - since the sale of a personal residence does not usually get reported on a 1099-S;
2 - that the IRS is going to be looking for a return to match the 1099-S to. Since it was issued to the trust, reporting the sale on your personal returns will make it impossible for the IRS to match the actual sale to the reporting.
So - report the sale on the 1041. When the loss gets to your personal returns remember that you have limits on how much you can deduct in a given year.
answered 30 Jul '10, 20:43