Do I Have to Pay Taxes on the Sale of a Home in a Trust?

Putting a home in a trust can help your beneficiaries avoid probate when you die and it can also help them avoid losing the home to creditors. If property is owned by a trust, it can still be sold. In this situation, you may also be able to take advantage of the capital gains tax exemption that is available for primary residences.

Capital Gains Exemption

When you sell a home that is your primary residence, you may be able to take advantage of an exemption for capital gains taxes. The Internal Revenue Service (IRS) allows you to exempt up to $500,000 if you are married or up to $250,000 as a single owner, as of the time of publication. To get this exemption, you have to live in the property for at least two out of the previous five years and you must be using the house as your primary residence at the time of the sale.

Home in Trust

When a home is held in a trust, you should still be able to take advantage of the primary residence capital gains tax exemption. To get this exemption, you will have to follow the same rules that apply when the home is not held in a trust. You still have to reside in the home as your primary residence for at least two out of the last five years. Although the house is technically held by the trust, you are the resident and can still claim the exemption.

Beneficiary

When a home is held in an irrevocable trust, you could potentially allow your beneficiaries who live in the home instead of living in it yourself. When this happens, your beneficiary can sell the house and take advantage of the capital gains tax exemption. The beneficiary has to live in the house and fulfill the requirements for this tax deduction. The trustee will have to be the one to initiate the sale of the property.

Not Primary Residence

If the home is not your primary residence, or it is the primary residence of a beneficiary, capital gains taxes will have to be paid on the sale. In this case,the capital gains taxes will be calculated by subtracting the cost basis from the sale price of the property. This amount will then be multiplied by the appropriate capital gains tax rate to determine the tax liability for the trust.

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