Inherited real property still in EIN grantor trust

Forum|Forum|3 years ago
October 17, 2022
2 replies
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Our father died 5 years ago.

His home and assets remain in his trust which was assigned an EIN after his death and 1041 is prepared each year.

The home is intended for passive income but needed extensive repairs and has accumulated a huge carry forward loss.

As trustee and owners, but not the grantors, can we transfer another of our passive income properties into the trust to absorb the carry forward loss or would that constitute ownership change since the trust has an EIN?

We are both recorded with the county assessor's office as rightful owners.

As trustee I have authority to aquire assets for the trust.

Thanks,

Best answer by Anonymous_

Both of you is who?

Despite the fact that you were not the original grantors does not necessarily mean the trust is not a grantor trust. If you (both) actually own the asset(s), as a result of having certain powers granted to you by the terms of the trust, then you can essentially do what you desire.

I would recommend seeking guidance from a local professional who can review the terms of the trust.

A

Anonymous_Answer

Employee

Both of you is who?

Despite the fact that you were not the original grantors does not necessarily mean the trust is not a grantor trust. If you (both) actually own the asset(s), as a result of having certain powers granted to you by the terms of the trust, then you can essentially do what you desire.

I would recommend seeking guidance from a local professional who can review the terms of the trust.

O

oggiejaxAuthor

Employee

We are the children who inherited.

For simplification purposes, assume the trust allows the trustee full discretion.

A local CPA has advised that because the property is still in my father's trust , we would lose the passive loss carry forward when transferred into our names and I just don't buy that, and I need to figure out a way to use up this carry forward loss.

M

Mike9241

When an estate disposes of a passive activity, the estate is permitted to deduct suspended or unused passive losses, i.e., those it has previously not been allowed as deductions. Generally, the distribution of passive activity property would not be a taxable event. In the case of a distribution of passive activity property on termination of an estate, absent amendment to the Code, there seems to be no ability to pass through suspended losses to the beneficiaries. Depending on the facts, this might be an asset that should be distributed or sold prior to termination.

as for transferring property into the trust that you own see a tax lawyer. the way i see it that would likely create tax problems because you would be the grantor, trustee and beneficiary and would as such might actually convert the trust to a grantor trust and lose those previous PAL.

A

Anonymous_

Employee

A trust bypasses the estate so that component would be irrelevant.

A

Anonymous_

Employee

@oggiejax

You need to consult with a local professional (tax or legal) since decedents dying with passive losses can create a rather complex situation (it affects basis).

See https://www.thetaxadviser.com/issues/2017/jan/carryovers-death-spouse.html

Passive activity loss carryovers: Suspended passive activity losses (PALs) must be traced to the owner of the activity. Under Sec. 469(g)(2)(b), any of the decedent's PAL carryovers are allowed on the final joint return for the year of death, as the activity is considered disposed of. However, the amount of carryover that can be deducted must be reduced by the excess of the basis of the property in the hands of the transferee (the heir) over the decedent's adjusted basis in the property just before death. In other words, the amount of loss equal to the step-up in basis at death is not allowed to the decedent or to anyone else because the heirs receive that tax benefit from the step-up in basis. If the decedent's PAL carryover is less than the step-up in basis, none of the carryover is allowed on the final return.