Sale of residence by a trust

[mel6832]

How do I report on a Trust 1041 the sale of residence to get exclusion of gain?

[Roland Slugg]

The exclusion allowance only applies to the sale of a taxpayer's principal residence. A trust doesn't have a principal residence, since it is not a living person. Report on Schedule D (Form 1041).

[mel6832]

Sale of Principal Residence by Trust

The exclusion allowance only applies to the sale of a taxpayer's principal residence. A trust doesn't have a principal residence, since it is not a living person. Report on Schedule D (Form 1041).

Thanks for your reply, Roland. However, these are the facts:
In the Trust documents , the grantors retained a limited testamentary capacity, meaning they can change the beneficiaries of the trust. The lawyer who formed the trust stated that the IRS views the assets transferred to the trust as not completed gifts at the time of transfer. Because of this arrangement, no gift tax returns were required and the responsibility of tax events incurred by the trust remains with the grantors as individuals. Therefore, the primary residence exclusion for the sale of the grantor's home, which was transferred to the trust applies. The 1099-B was issued to the Trust for the gross proceeds. Again, how do I report this on the Trust Form 1041?

[Gretel]

As Roland stated this needs to be reported on Schedule D (1041). Home exclusion neither applies nor is needed no matter what the lawyer says. I appears that the home was transferred and sold fast after death. Step up basis should lead to zero income or even a loss for sales expenses. I would be careful claiming a loss in the circumstances described.

[Roland Slugg]

I (sic..it) appears that the home was transferred and sold fast after death.

Death? Did the post say someone died? I didn't catch that. Or perhaps you were anticipating what might be added in the next revision to the OP. Don't know about you but I lose interest in threads when the OP fails to include key information, or the information that is there gets changed.

[New York Enrolled Agent]

The exclusion allowance only applies to the sale of a taxpayer's principal residence. A trust doesn't have a principal residence, since it is not a living person. Report on Schedule D (Form 1041).

I think the second post by the original poster suggests that this is a grantor trust and thus I believe the section 121 exclusion can apply. Take a look at Reg. §1.121-1(c)(3)(i) - what do you think? Gretel- the lawyer may be correct.

[Roland Slugg]

Hello NYEA. I read that Reg and interpreted it to be referring to a grantor trust ... i.e. a disregarded entity. However, upon further research it appears that Code §674(a) may be a relevant factor in the case in point. If so, then I should think the sale would be reported on the individual's return, not the trust's return, and the §121 exclusion taken into account there ... i.e. on Schedule D (F-1040). I can find no provision that allows a §121 exclusion on F-1041.

[Burke]

I agree. It appears this is a living trust, revocable trust or intentionally defective trust. In any event, it seems the grantors (and original owners of the home) are living and they have control over the trust. As such the trust is a disregarded entity, no trust return is filed, and everything goes on the grantor(s) 1040, including any other taxable income reported under the trust.