Form 1041

[kathy_z]

We sold a home that was in an irrevocable trust in 2024 and purchased another in the same year because the beneficiary could not manage the original "family" home (in accordance with the trust). The difference in cost for the home purchased was about $47,000 less that the sale of the original family home. $30, 000 was put into a CD in the name of the trust. The remainder was put into a trust checking account and used to pay bills in accordance with the trust. No money was distributed to the beneficiary.

I have entered the sale of the original family home but don't know how to enter the purchase of the other home. Right now it shows that the trust owes $47,000.  This is the first time I have tried to do a 1041 and am at a loss.

[PatriciaV]

The new home is a trust asset that isn't reported on Form 1041. The remaining cash/CD is also a trust asset, again not reportable. However, the trust may owe taxes on the capital gains from the sale of the original home. Purchasing a new home wouldn't affect that taxable income.

To see how the tax is calculated, click the Forms icon in the TurboTax header and open Form 1041. Scroll down to Schedule G to review the tax computation. Also check Schedule D, which is the form that reports the home sale.

Because an irrevocable trust is generally not eligible for the home sale exclusion available to individuals, you may wish to consult with a local tax attorney to discuss your options. There are exceptions that an attorney may pursue to reduce or eliminate the tax on the capital gain from the sale of the home.

[kathy_z]

Thank you for your response.

So even if the new home is purchased in the name of the trust, it doesn't serve as a deduction on the 1041.

What we did was really a "shuffling" of the trust assets. My initial input into the 1041 resulted in a large amount of capital gains (taxes owed) even though the house was only valued at $225,000 and did not increase in value from the time the trust became irrevocable until the time the house was sold.

[RobertB4444]

That is correct.  You do not get a deduction for purchasing a new home.  Just the expenses of the estate.  

The gain on the sale of the house is what is important here and what you need to figure out.  How did the trust receive the house?  Was it an inherited asset or transferred by a living person.  How did you determine the basis that you used for the sale?

@kathy_z