Basis of Home in Revocable Trust

[shappie125]

I am working on my grandma's taxes. She sold her home in 2022 and the home was in her revocable living trust. The home was purchased back in 1964 and was previously joint owned by her and her husband. In 2000, they transferred the home into my grandma's revocable living trust. At that time, my grandpa was still alive. Is the basis of the house in her trust 50% of the home or is it 100% since they transferred the full value of the home into her trust. My grandpa later died in 2010. 

[tagteam · Accepted solution]

Revocable living trusts are virtually always grantor trusts and, as such, are treated as disregarded entities for federal income tax purposes. In other words, the transfers would be treated as having been directly to your grandma (i.e., the fact that a grantor trust held title is not relevant for federal income tax purposes).

As a result, her basis is most likely a carryover basis from 1964 (without knowing all of the precise details, that would be an educated guess).

[shappie125]

I'm more so concerned if her basis is 50% of the home or 100% since it was jointly owned with her husband before the transfer into the trust. Does that make sense? Does the husbands portion go into her basis?

[tagteam]

I am not sure I understand what you may not understand so you will have to forgive me.

Based upon your fact pattern, her basis would be whatever the price paid was in 1964 plus the cost of any improvements over the years; the transfers do not add to (or subtract from) her basis.

[shappie125]

Her and her husband bought the house together in 1964. When it was later transferred into the trust, I am curious if she is able to now effectively own 100% of the basis or if he still technically owns 50% and she owns 50% until his death.

[tagteam]

You stated it was her trust. Is that correct? 

In other words, your grandmother was the sole owner of the house (or her revocable trust was the sole titleholder)? She would not get a stepped-up basis upon the transfer into her trust, if that is what you are wondering and he owns nothing if he transferred his interest to your grandmother (or a trust for which she is the sole beneficiary).

[shappie125]

Correct. This is her trust. Let's say her and her husband bought the house for $100K. So technically at the time of purchase, they each own $50K. Later, they transferred the whole house into HER trust. Does she now get full basis of the house at $100K? Or her basis is still only $50K.

[tagteam]

$100k; $50k for her original cost basis plus $50k of his basis (a carryover).