Inherited real property still in EIN grantor trust

[oggiejax]

I am certain that is what he suggested, but I am not certain that he totally understood that my father had passed, basis had been established, depreciation allowance has been taken and the loss was incurred after an EIN had been received.

Would I be safe to eventually transfer this property out of our father's trust into our names and use the carryforward either against future income from this property or other passive income properties on the same tax schedule or when and if we sell it?

I want to combine it onto a tax schedule with another passive income property, as this will be a passive income property when the repairs are finished.

Thanks, 

[oggiejax]

Or am I wrong in assuming that a carryforward loss from one property can be used against passive income generated from another property on the same tax schedule?

[Anonymous_]

Since they are both rental real estate activities, and both presumably passive, you can use passive losses from one to offset passive income from the other.

[Anonymous_]

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@oggiejax wrote:

I am certain that is what he suggested, but I am not certain that he totally understood that my father had passed.....

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Exactly, and that needs to be clarified since he might be under the impression that you were inquiring about suspended passive losses incurred prior to his death.

[Mike9241]

what your CPA told you seems correct

For simplification purposes,  assume the trust allows the trustee full discretion. 

A local CPA has advised that because the property is still in my father's trust , we would lose the passive loss carry forward when transferred into our names 

when he died and you became the beneficiaries of the trust, it ceased to be a grantor trust. the returns filed post-mortem had a box checked decedent's estate and possibly later - simple or complex trust rather than grantor type trust.  if it was still a grantor trust then the PALs would pass out to the beneficiaries and not be retained by the trust. however, there's always the possibility the returns were incorrect. the trust may give you the power to transfer property into it but if it's your own property and since you are the trustee and beneficiary it would seem that under the tax laws it would again meet the definition of being a grantor trust which would likely result in the PAL on the old property being lost. 

since you doubt what your CPA is telling you, consult with a lawyer.  the problem this forum has is that we can't see the trust document and what we offer does not constitute legal advice.

with passive real estate, the passive income and losses are netted and then subject to the PAL limitation. but this is at the 1040 level. 

[Anonymous_]

@Mike9241 

Critical fact is that the passive losses were incurred after the trust became irrevocable and, apparently, no longer a grantor trust.

[oggiejax]

So, if I don't get to keep the accumulated depreciation, then I get to start depreciating all over, again?

[oggiejax]

Okay, thank you.

[Anonymous_]

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@oggiejax wrote:

So, if I don't get to keep the accumulated depreciation, then I get to start depreciating all over, again?

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As @Mike9241 indicated, we cannot read the terms of the trust.

However, the typical scenario is that the grantor trust becomes irrevocable upon the death of the grantor and the trust then "acquires" the property from the grantor at a basis stepped up to its fair market value as of the date of death of the grantor. Thus, the basis for depreciation is the FMV on the date of death and the recovery period starts over as of the date of death.

[oggiejax]

Could you at least offer a hint of what I need to look for within the trust other than my broad authority to purchase, sell, incur debt, pay off debt and make distributions with full discretion?

My problem is that I am being ping-ponged back and forth between CPA, Tax Attorney and Estate Attorney.  An attorney won't answer tax issues and a CPA won't answer legal issues.

The estate was never taken out of the trust because I had been told that the mortgage company would call the note if the deed was changed, but I am now being told that is not true.

There must be someone who can answer both legal and tax questions?

None of these people want to give advice; they want me to hand them the file and let them charge me thousands to resolve it, only to realize that it was not a problem, at all.

[Anonymous_ · Accepted solution]

There are those of us who can answer tax and legal questions but not on this forum.

I believe already indicated that if the property were distributed in kind, then the tax attributes would follow in your particular scenario (i.e., losses were incurred after the grantor died and the trust became irrevocable). I am not certain how much more you need to know.