Massachusetts Estate Tax paid but property in a Trust sold for more than Date of Death Appraisal

[Jchaves429]

Hi,

As part of my parent's estate, we paid estate taxes on 2 properties in Massachusetts.  If the properties sold for more than the Date of Death Appraisal what happens?

[MaryK4]

You will pay income tax on only the amount of increase.

The estate tax and income tax are two separate taxes.  The estate tax is paid on the total value at the time of transfer.  For income tax purposes, you get a "step-up" in basis so the income is the amount above the value at the time of transfer.

Condolences on your loss.

[Jchaves429]

Thank you! The Trustee sold the apartment unit in October of 2024. The Trustee still has not disbursed. So if we have to pay taxes on the difference from the date of death appraisal which will be divided by 6. So if I don't receive my inheritance am I responsible for paying if I have not received?  

Thank you

[AmyC · Accepted solution]

No, until the funds are dispersed, you will not have a tax liability on your personal return. The estate is reporting the sale for now.

The estate will issue a k-1 for you to file with your tax return. It will show your share of any distributed taxable income items from the estate. 

[Jchaves429]

Thank you so much for your help with this.  Okay so from what I understand and please correct me if I am wrong, the Trust has until March 15th to give beneficiaries a K1 correct?  

[Jchaves429]

One more question: if trustee does not distribute, he is required to file taxes from the sale and since it has not been disbursed is he still required to file? And if so, does trust pay capital gains instead of beneficiaries 

[RobertB4444]

The K-1 reflects any money that the trust has earned.  As beneficiaries of the trust the taxes due can be passed through to you so that the trust does not pay them.  The trust should be subject to a 65 day rule that gives the trustee until the 5th of March to distribute income.  

There are trusts that are for the benefit of minors or disabled persons where the income is accumulated and not distributed at all until it is needed or required.  In those cases the beneficiaries usually do not pay the taxes.

If you are in a disagreement with the trustee of your parents' trust as to how the income should be distributed then you should consult an attorney in your locality as to what type of trust this is and what the requirements are.

@Jchaves429