@Phatparents wrote:
The house was sold in 2019 and the "Living Trust" has received a 1099-S for the selling price of $345,000.
There are threshold questions here that need to be answered:
Did anyone apply for an EIN for the trust? If so, does the 1099-S have that EIN on it? If not, what tax ID number appears on the 1099-S?
The way this usually works is the grantor (your mother) has a living trust (aka revocable living trust) drafted during his/her lifetime and specifies the property the trust holds. Upon death, the trust becomes irrevocable and a new tax ID number (EIN) is obtained from the IRS. The trust is now typically considered to be a separate entity and will file a Form 1041 if the threshold income requirements are met.
In this instance, the basis of your mother's house gets stepped up to its fair market value as of the date of her death. If the sales price was the same as the basis (as you indicated it was), then there would be no gain (profit) on the sale. However, the IRS is only aware that a tax reporting statement (a 1099-S) was received that contained the gross proceeds; the IRS is not aware of the trust's basis in the property. Therefore, a return needs to be filed that shows the sales proceeds and basis of the property. If the figures are the same, there is no gain and the K-1s would essentially be blank (and, actually, it would not be necessary to even issue them).
