Thanks, M-MTax; you clearly know more about taxes than I do. Maybe I'm not reading the regs correctly, but the house has been in my brother's trust for 5 years, and he has lived in it for those five years. Assuming a grantor trust and he meets the criteria in sections 671 through 679 (which I will look at), I read this as saying, "the sale or exchange by the trust will be treated as if made by the taxpayer." So, let's say he keeps ownership of the house in the trust, and the trust sells the house. Is the 1099-S issued to the trust's tax-paying ID or my brother's SSN? If the trust reports the gain, somehow the K-1 of the trust needs to transfer that capital gain to my brother and indicate it as from a home sale that will be treated as if made by my brother. The IRS will want either the trust or my brother to include the capital gain, and those tax returns need to know what the other is doing. Otherwise, it risks both reporting or neither reporting the gain. That's why I was thinking if he moved the house out of the trust into his name, it's clear that the sale is treated as made by the taxpayer. There is nothing more confusing than trying to read the source tax regulations!
