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September 15, 2024
Question

Dealing with tax consequences of selling property in irrevocable trust AFTER grantor's death.

  • September 15, 2024
  • 1 reply
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If I understand correctly, after the death of the grantor, a house in an irrevocable trust may be sold by the trustee.  The properly value is stepped up to the FMV on the date of the grantor's death. Assuming the property sells for less than or equal to the stepped-up value, when the heirs receive their portion of the proceeds, how should those proceeds appear on the tax returns of the heirs?

1 reply

Employee
September 15, 2024

If the house is sold out of the trust, a Form 1041 should be filed reflecting the transaction.

 

See https://www.irs.gov/instructions/i1041#en_US_2023_publink1000285943

 

A capital loss on the sale can be passed through to the beneficiaries on the final return (1041) via K-1s.