@CoolFunDad wrote:
Hi Opus17, your replies to people have been extremely informative and I wanted to reach out to see if you could possibly help me answer what has been a very difficult question that 2 lawyers and an accountant have have not been able to provide me a definitive answer on. Here it is. At what point did my 2 brothers and I became OWNERS of the home we inherited if: We were designated as Co-Successor Trustees of our moms Revocable LIVING TRUST she created in 2018, she passed away in 2019, we became Co-Successor Trustees of all trusts provided for in her Declaration of Trust from 2018, and we filed a grant deed in 2020 removing the house from being in each of our names in the trust to now being in each of our names as tenants in common? The question of when ownership was established will determine if we qualify for a $250k capital gains exclusion on the sale of the home which requires that we have both owned and had the home as our primary residence for 2 of the previous 5 years before sale. Was ownership established when my mom put the house in the trust in 2018 since we were both co successor trustees and beneficiaries? Or when she passed in 2019? Or when the house was removed from the trust when the deed was filed in 2020 making my brother and I tenants in common? My brothers and I own the property equally share and share alike.
The definite answer is when you filed the deed change in 2020. Before that, the trust owned the house. Being that you were the trustees, you probably had "beneficial ownership" or "constructive ownership" of the home. This would make you entitled to deduct mortgage interest and property taxes if you paid them even if you were not the legal owners on the deed. I don't think the regulations extend the concept of beneficial ownership to the capital gains exclusion, but I am not 100% certain.
Whether you can be considered the owners "in fact" prior to 2020, for purposes of the exclusion, is something I can't answer. The trust owned the house but you were the trustees after your mom's death, so you owned the house in all but a technical sense after her death. But sometimes technicalities are important.
Have you asked an enrolled agent? This is an accountant who is specially licensed to practice before the IRS.
Additionally, you received a stepped up basis when your mother passed, so the only capital gains you will have is the increase in value from 2019. Do you have an appraisal or valuation from around the time of her death? You will need one.
Lastly, if you are selling due to certain hardship conditions, you can qualify for a partial exclusion even if you owned the home less than 2 years. For example, if one of you is moving for a job, that forces you to both sell the home, then you would both qualify for a partial exclusion.
@Anonymous_
any thoughts?
