PK very helpful I have an Attorney/CPA I have been working with for 10 years and I am concerned I am not getting the right tax advice, please may I ask you to comment further. As I said my mother died on 1/9/13 and my father on 4/6/04 he became a paraplegic in 1999 and decided to form and place his stocks less than 50K fmv at the time in a Barrett Family Income trust (not a living trust Irrevocable under article 13 of the trust), additionally he created a Barrett Family Trust (also irrevocable under article 13) and sold our family home to the trust for $73,600 in Feb 2000. My father did not have a will, my mother was assigned the Voluntary Administrator of his estate after his death. The little assets he had were contents of the home and a few stocks in his and mother's name as Joint Tenants. Finally, my mother did have a will and I was assigned the Executor of her estate as Voluntary Administrator in the state of Mass an informal probate when assets totals are less than 25K plus a car which she met. I am also the Trustee of both trusts along with my brother as co-trustees.
We decided as a family to sell the house from the Barrett Family Trust to myself and my 2 brothers for an agreed price of $480K the basis for the capital gain as defined by my CPA was about $283K (not a stepped up value but calculated based on 73.6K plus home modifications of 160K, hardship loan of 25K and loan from my brother for about 25K). The sale was completed and liens were paid off including the 50K mentioned above plus outstanding mortgage of 30K in mid April of 2014, each of the 6 siblings including myself received about 64K in cash to my sisters and in equity to myself and 2 brothers who own a live there as their primary residence.
I have been told by my CPA that the cap gain of about 200K will be offset by about 120K in passive losses or 80K/6 time 20% or about $2,600 each sibling carried on their 1040 via the K-1 from the Barrett Family Trust. My question is how will the 64K distributions be treated in cash to the 3 sisters and in equity to the 3 brothers? Ordinary Income? line 17 or line 21 of the 1040?
Or Does the Barrett Family Trust pay the tax through it's own 1041? My concern is correctly setting the basis for the home plus will the 64k distribution that will knock all of us as siblings to a higher tax brackets.
Please advise you may phone if you like on my cell at 508.954.3220. I have another CPA friend who is also doing some analysis and I would like to distribute all liquefied assets held in my mother's Estate (18K) and those held in the Barrett Family Income Trust (10K) to all siblings before year end, less taxes owed and fees to my attorney/CPA.
Thanks
Joe Barrett
