Trust Capital Gain

[Max W]

A marital trust  (B) was created 4 years ago when spouse died.  The home, only asset, sold this year, so there was a good amout of LTCG.

Does the trust get the Sec 121 ($250K) exemption?t

[DANRVAN]

The only trust eligible for the exclusion is a grantor trust.  see reg 1.121-1(c)(3)(i)

I believe it would have been allowed under a provision of  the EGTRRA of 2001, but that was subject to sunset.

[Abby Normal]

Did you step up 50% of the house at date of death?

[Max W]

4 hours ago, Abby Normal said:

Did you step up 50% of the house at date of death?

Yes, and it was based on appraisal at that time, 2014.

[Max W]

From a article I will post here, it seems that the B trust can still claim the Sec 121 exemption if a QTIP election to file as an estate is made, as there was no estate return filed when spouse died.

Of course it would have to be a late election and the article does not get into how that is handled.

https://aboutlivingtrusts.com/step-up-in-basis-with-a-b-trusts/

[DANRVAN]

Max, as I understand it, the QTIP will move the assets from the estate of the decedent to that of surviving spouse.

However, I don't know if reg 1.121-1(c)(3)(i) will apply since the house was not owned by a grantor's trust at the time of sale,  maybe an attorney can help. 

I hope your client appreciates the digging and scratching you are doing for them.