It also adds capital gains tax in addition to the investment income tax.
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.
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.
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.
@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.
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).
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?
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.
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.
@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.
If the house was being held for personal use, you cannot deduct "repair/fix up costs" as expenses of the sale.
@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.
Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.
**Mark the post that answers your question by clicking on "Mark as Best Answer"
That's what I did and Ioesn't work.
@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.
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?
@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.
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.
@Anonymous_ wrote:Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.
That's exactly what I'm referring to. That's where the pink boxes are.
@Anonymous_ wrote: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.
Yes, all that's accounted for.
@Dave Bar wrote:
@Anonymous_ wrote:
Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.
That's exactly what I'm referring to.
Are both boxes unchecked? That should clear the error.
@Anonymous_ wrote:
@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.
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.
I am using the stepped up basis. And I realize a taxable cap gain on 8949. I'm trying to figure out why turbo tax creates a 8960 and uses only the gain (gross - sales expenses) . If it's investment income, should I not be able to take investment expenses as a deduction against it on the 8960?
When I owned rental property, I could deduct those type of expenses.
@Dave Bar wrote:
I'm trying to figure out why turbo tax creates a 8960 and uses only the gain (gross - sales expenses) . If it's investment income, should I not be able to take investment expenses as a deduction against it on the 8960?
When I owned rental property, I could deduct those type of expenses.
No, you cannot take investment expenses as a deduction on property held for personal use; it is not the same as rental property (which, in a sense, is considered business property).
TurboTax will create an 8960 if your gain (or total investment income) is around $13,151 or more).
@Anonymous_ wrote:
@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.
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?
The capital gain is about $29,000 and I suppose it is enough to trip the NIIT tax in a trust. It's reported on line 5a of the 8960. There is other income the trust had but it is only the cap gain amount that is included on the 8960. If I'm stuck being double taxed I should at least be able to "double" deduct any expenses that I incurred in managing the investment property. Since it is a totally additional tax, should I not be able to deduct these expenses both from the 1041 and the 8960? I'm being taxed on the "income" twice.
@Anonymous_ wrote:
@Dave Bar wrote:
@Anonymous_ wrote:Enter Forms Mode and uncheck the box on that worksheet; leave both boxes unchecked.
That's exactly what I'm referring to.
Are both boxes unchecked? That should clear the error.
I tried that, with neither checked, they are both clear. With either the yes or no checked they turn pink. I can't check both of course. In every circumstance the 8960 is generated and it's always the same.
The error that is corrected is just the color of the boxes. The extra tax and lack of legitimate investment deductions error remains in all cases.
@Dave Bar wrote:
The capital gain is about $29,000 and I suppose it is enough to trip the NIIT tax in a trust. It's reported on line 5a of the 8960. There is other income the trust had but it is only the cap gain amount that is included on the 8960. If I'm stuck being double taxed I should at least be able to "double" deduct any expenses that I incurred in managing the investment property.
Yes, that is more than enough to trigger the NIIT. However, the trust is not being "double taxed" since the NIIT is simply an additional tax (3.8%) that is tacked on to the regular income tax.
Also, is this actually investment property? I was under the impression that it was being held for personal use.
Regardless, if you have trust expenses, those expenses should be reflected on your 8960 (at the bottom) in the form of a reduced AGI.
When I owned rental property, I could deduct those type of expenses.
No, you cannot take investment expenses as a deduction on property held for personal use; it is not the same as rental property (which, in a sense, is considered business property).
TurboTax will create an 8960 if your gain (or total investment income) is around $13,151 or more).
Ok, I got that, and was sort of starting to realize the hopeless situation I'm in.
Over the two years, I spent in excess of $10,000 on repairs, maintenance, taxes, insurance etc, on the gd house and now that it's sold, I'll have to pay tax as if it were "investment property" but I can't deduct expenses for the "investment" property. And that is true no matter what boxes I check on turbo tax. Personal use or not, I pay the extra tax. There is no combination of boxes I can check on the turbo tax Home sale Worksheet that will change that.
@Dave Bar wrote:
The extra tax and lack of legitimate investment deductions error remains in all cases.
You must not realize that the test for deductibility of an expense for the investment (mostly miscellaneous expenses) of a trust is whether the expenses would commonly or customarily be incurred by a hypothetical individual holding the same property.
@Anonymous_ wrote:
@Dave Bar wrote:
The capital gain is about $29,000 and I suppose it is enough to trip the NIIT tax in a trust. It's reported on line 5a of the 8960. There is other income the trust had but it is only the cap gain amount that is included on the 8960. If I'm stuck being double taxed I should at least be able to "double" deduct any expenses that I incurred in managing the investment property.Yes, that is more than enough to trigger the NIIT. However, the trust is not being "double taxed" since the NIIT is simply an additional tax (3.8%) that is tacked on to the regular income tax.
Also, is this actually investment property? I was under the impression that it was being held for personal use.
Regardless, if you have trust expenses, those expenses should be reflected on your 8960 (at the bottom) in the form of a reduced AGI.
Do you think I could just use the override feature and include the expenses on the 8960?