Are we taxed on the sale of house sold in Family Trust?

[bls0901]

Mother's house was in a Family Trust, in very poor condition.  She passed away in March. House has been sold for $100,000 below assessed tax value. Are the proceeds from the sale taxable? Do we the 4 children who are left have to pay inheritance taxes on our shares in Maryland?

[TaxGuyBill]

Nobody can tell you until they read the trust.  There are many types of trusts, and each can be different, and each individual trust may specify how to handle things.

I recommend going to a tax professional and/or an Estate lawyer.

[dickcaro]

It is my understanding that inherited property has an acquisition value at the time of passing of the last owner, which would be your mother as the prime trustee of the family trust. You should have had the house appraised soon after she passed. Any taxes would be due on the appreciation of the property since she passed, which appears to be zero or negative. You and your siblings do not owe taxes on the total value of the house. I do not know about Maryland tax code.

[TaxGuyBill]

@dickcaro   The house was in a Trust, and it depends on the trust.  For example, an irrevocable trust would NOT get the 'step up' value on death.

[bls0901]

I am going to a CPA  in the county where she lived. The trust has wording in it that says it was created to avoid taxes due to her heirs or something like that. We did have 2 real estate agents come in and in their estimation due to the amount of repairs needed they said the house was worth between $90k and 110k at the most. We sold it to a company for 140k. The county tax  assessment has it assessed at 270k.

[TaxGuyBill]

If you sold it for $140,000 a few months after she died, it would be worth about $140,000, not $90,000-$100,000.

Most likely dickcaro is correct and it will get a 'step up' in value, which means most likely there will be little or no tax due.

However, that wording in the trust MIGHT be a bad thing.  It MIGHT mean that the trust will pay any taxes, which would be quite a bit higher than if the individuals pay that tax.  But again, until the trust is thoroughly read, it is impossible to know what it going to happen.

[bls0901]

Who reads the trust? A CPA? Or do I have to go to a eldercare lawyer? The lawyer for the sale of the house needed to see a copy of the trust to be sure that we had authority to sell it. My sister and I were/are co trustees. I have been taking the lead paying off the medical bills but the house has been empty for 3 years but we paid the property taxes, no utitilies to speak of.  When I cashed in annuities taxes were withheld on the interest and we each will get a 1099 on them. The only amount that had to filed for at the probate was $137 for small estate since there was a savings bond left out of the trust directions stating what was included in the trust. The house and contents were the only things left plus some cash left over in a checking account.

[bls0901]

I plan on going to a CPA to have all of the tax paperwork done. The lawyer was going to send us to one that his firm deals with.

[Carl]

The cost will be well worth it, as it will be significantly cheaper than the potential fines and penalties that would be imposed for reporting things incorrectly.

[Carl · Accepted solution]

You need a CPA or lawyer who is knowledgeable in wills, estates and trusts. If still living, the one who prepared the trust would probably be best. But the bottom line is, because of all the possible scenarios at BOTH the federal and state level when it comes to taxes, you need legal representation that you can personally hold legally and financially liable for the information and advice they give you. You do not have that protection in this public user-to-user forum. Please seek professional help with a pro that you can look in the eyeballs and make it clear that you are holding them financially and legally responsible.