I using turbo tax business to prepare 1041 for trust after my father died. We sold his house. It keeps treating the cap gains as investment income and adding tax. The hoyse was never used as income property..

[Dave Bar]

It also adds capital gains tax in addition to the investment income tax.

[99sc2]

If it qualifies as the sale of a personal residence, you could list the sale on Form 8949 with the H code in column (f) and the amount of gain that you are excluding as a negative number in column (g).   You would need to look at how the home was titled, and your father's relationship to the trust to see if you can exclude the gain.

[ThomasM125]

If you had a gain on the sale of the house belonging to a trust it would be treated as a taxable capital gain. However, the gain would be determined by subtracting the cost basis of the house from the net sale proceeds. The cost basis would be the fair market value of the house when the trust was created plus improvements made to it after that time. So, you may need to adjust your cost basis to reduce or eliminate the capital gain that is being reported.

[Anonymous_]

In the typical circumstance, the trust became irrevocable when your father passed. As a result, the trust took the house with a stepped up basis (stepped up to its fair market value on the date of your father's death).

You would then subtract that (stepped up) basis from the sales price (less selling expenses) to arrive at any capital gain (or loss).

If there is a gain, then the gain will be taxed at the trust income tax rates unless the gain is distributed to the beneficiary(ies). With respect to a gain, it makes no difference whether the property was held for personal use or for investment; the gain is taxable.

[Anonymous_]

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@ThomasM125 wrote:

The cost basis would be the fair market value of the house when the trust was created plus improvements made to it after that time.

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If this is the standard revocable trust (aka living trust, RLT, etc. and not something like an IDGT), then the basis is not the fair market value on the date the trust was created. The basis is the fair market value on the date the trust became irrevocable (which is almost always the date the grantor died).

[Dave Bar]

Turbo tax created both an 8949 and an 8960. On the 8949, the gain is listed in column h under long term Cap gains.

If I delete the 8960, it just recreates it.

In the worksheet  if I check the box No for the question B  Was the home sold used for investment, both the Yes and No options turn pink and it has no effect on tax. Even if the No box remains checked it is still pink and doesn't change anything. 

I tried doing some "dummy" returns changing the type of trust, dates of acquisition and sale etc. and  the 8960 remains the same. And it remains undeletable. It is charging me 3.8 % of the cap gains minus selling expensive.

The other, substantial expenses , like the repair/fix up cost, remain just a deduction on the 1041 and aren't transferred to the 8960.

If I am stuck paying it  and since the 8960 is a separate tax, shouldn't I be able to deduct those expenses from the gain on that form as well as directly on the 1041? Basically,  

I'm being taxed on the gain twice, shouldn't I be able to be able to deduct cost twice?

[Dave Bar]

 ThomasM125,

Everything you said in the post has already been done. As you know real-estate values have soared in the last two years so there is a cap gain even after doing everything you suggested. It the extra 8960 tax that turbo tax is determined to make me pay.

No thumbs up yet, but thanks.

[Dave Bar]

I just tried reducing the gain on a "dummy" form. If the gain is anything but zero or a loss, turbo tax creates the 8960.

[Anonymous_]

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@Dave Bar wrote:

The other, substantial expenses , like the repair/fix up cost, remain just a deduction on the 1041 and aren't transferred to the 8960.

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@Dave Bar 

If the house was being held for personal use, you cannot deduct "repair/fix up costs" as expenses of the sale.

[Anonymous_]

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@Dave Bar wrote:

In the worksheet  if I check the box No for the question B  Was the home sold used for investment, both the Yes and No options turn pink and it has no effect on tax. Even if the No box remains checked it is still pink and doesn't change anything. 

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Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.

[Dave Bar]

**Mark the post that answers your question by clicking on "Mark as Best Answer"

That's what I did and Ioesn't work.

[Anonymous_]

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@Dave Bar wrote:

I just tried reducing the gain on a "dummy" form. If the gain is anything but zero or a loss, turbo tax creates the 8960.

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You either have sufficient income so that an 8960 is generated or there is an input error. 

Is the gain from the sale the only gain and income? If so, how much is it?

[Anonymous_]

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@Dave Bar wrote:

**Mark the post that answers your question by clicking on "Mark as Best Answer"

That's what I did and Ioesn't work.

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Are you reading my posts or what? What @ThomasM125 wrote in his post is likely wrong; your basis is not the fair market value when the trust was created. Your basis would be the fair market value when the trust became irrevocable (if it is the typical grantor trust scenario) and the trust likely became irrevocable on the date of death of your father.

[Dave Bar]

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@Anonymous_ wrote:

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Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.

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That's exactly what I'm referring to. That's where the pink boxes are.