Capital Gains Taxes on sale of inherited real estate

[rnev11]

Looking for guidance on below sale of real estate that was inherited by siblings after death of mother. The home was part of a trust.

The home was sold at approx $75k capital gain and have the following questions:

Is executor responsible for withholding taxes on behalf of the beneficiaries?

 (California State and Federal)

Does the Trust need to file a tax return and report the capital gains or do the capital gains pass through to the beneficiaries and they would need to report the capital gains (California Sate and Federal) on their tax returns?

Are there any exemptions available for capital gains on this transaction or do the beneficiaries only get the benefit of getting a stepped up cost basis?

Appreciate any help here.

Thanks!

[Critter-3 · Accepted solution]

Does the Trust need to file a tax return and report the capital gains or do the capital gains pass through to the beneficiaries and they would need to report the capital gains (California Sate and Federal) on their tax returns?    If the trust owned the home and sold the home then a trust return form 1041 needs to be filed and either the trust will pay the taxes or they will pass thru the income to the beneficiaries.  I highly recommend using a local professional if you are not sure of what you are doing on this return so you are not surprised by an audit letter you would be responsible for in the future.

Is executor responsible for withholding taxes on behalf of the beneficiaries?  NO ... if the income is passed thru then they are responsible for any taxes not the trust.

 (California State and Federal)

Are there any exemptions available for capital gains on this transaction or do the beneficiaries only get the benefit of getting a stepped up cost basis?  DOD step up is all they get or need. 

[tagteam · Accepted solution]

I agree with @Critter-3; seek guidance from a qualified local professional.

See https://taxexperts.naea.org/listing/service/estates-gifts-trusts

Also, withholding is not necessary if the trust that had no tax liability for the full 12-month 2021 tax year.

Again, you need a qualified professional who can review the terms of the trust.

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[rnev11]

Thank you both for the responses and agree that local professional is needed.