Irrevocable trust

[TAX4US]

What we have: Irrevocable trust set up by dad and he put his residence in it. Trust has been renting property for several years. Dad has died and beneficary of the trust wants to give property to mom. Trust has not been allowed to deduct loss across the years. When trust distributes property to beneficary?

1: what happens to suppended losses?

2: what may be the basis for the propery going to beneficary as FMV is greater than basis of property put in the trust along with the depreciation allowed or not allowed due to loss positions.

3: will beneficary have ghost income due to this distribution?

The beneficary of the trust and mom have been to an attorney to get proper deeds done. It looks like trust gifted property to beneficary and beneficary gifted to mom. Mom is continuing to rent property for the income.

What do you think answers for the 3 questions may be?

Many thanks.

[mactoolsix]

Deleted per Burke's more knowledgeable post below.

Mike

[Burke]

Sounds like Dad set up an irrevocable trust during his lifetime for the rental property. A trust cannot take losses like an individual can. They are suspended until future years when there is such income as they can be used against, or at the time the property is sold. When the property passes to a named beneficiary under the terms of the trust, it passes at its adjusted basis to which the suspended losses can be added. There is no "ghost income" merely because the property passed to the bene under the terms of the trust. If the bene then gifts it to Mom, she takes it at the same basis. A revocable trust (RLT) is different. It would get stepped-up basis at the grantor's death.

[DaveinTexas]

You, my friend, are Awesome!!

Sounds like Dad set up irrevocable trust during his lifetime for the rental property. A trust cannot take losses like an individual can. They are suspended until future years when there is such income they can be used against, or at time of sale. When the property passes to a named beneficiary under the terms of the trust, it passes at its adjusted basis (to which the suspended losses can be added.) If the bene then gifts it to Mom, then she takes at the same basis. A revocable trust (RLT) is different. It would get stepped-up basis at the grantor's death.

I have this exact same situation and was wondering about the step up in basis. My client's father just passed away and she was inquiring about the step up in basis. I'll admit, I am pretty weak in the area of trusts/estates so I follow your posts quite regularly regarding these issues. Thanks for a great answer!