Sale of Living Trust-owned Primary Residence

[SteveJ57]

I think I've got the answer for this from reading other posts on the subject, but wanted to double-check that nothing has changed for 2023. My wife and I created a Living Trust (we are the grantor trustees) and transferred the deed to our home to the trust. We needed to set up Trust account (at Fidelity) to receive the proceeds from the sale (settlement attorney advised that we had to do this). Since we lived there five years as our only residence, and the proceeds were less than $500k (married filing jointly). We used a lot of the money toward our new home and some upgrades, and put about $35k in a mutual fund (in the trust account) since we don't need it right away.

1. Am I correct in assuming that these proceeds ($338k) still qualify for the home sale exclusion?
2. I assumed that capital gains (interest and dividends) from the mutual fund in the trust account are taxable, but will this require me to file a tax return for the trust, or can these proceeds be added to income on my 1040? 

[Mike9241 · Accepted solution]

Since you and your spouse are both the grantors and beneficiaries of the trust, it would be a grantor trust. As such the home sale exclusion is available. As to reporting it depends if the trust has an EIN. then the 1099S will likely have that number. This would require filing a grantor trust 1041 (same form as any other trust but instead of a K-1 you get a grantor trust letter. if it does not have an EIN the the 1099S will likely have one of your Social Security numbers on it. the sale, qualifying for the HSE exclusion would be reported directly on your 1040. 

if you have any other income from that trust a/c and an EIN is used on the reporting 1099s they must be included on the grantor trust return. If it's one of your SSNs the items are reported directly on your 1040 - no grantor trust return. 

To do a grantor trust return you need Turbotax Business which is only for full Windows PC - 64-bit operating system windows 10 or above. 

[SteveJ57]

Thanks for your response! The trust uses my SSN, so 1040 it is.