Q: How does Step-up in basis rule apply for AB Trust if wife sells the house after husband dies?
Husband died in 11/2020. Couple had a Rev Living Trust (AB Trust). I understand all estates will get a Step-up in basis as of spouse's death date.
If wife sells the house in 2021, can she get the Step-Up in basis rule for the entire house?
Someone was saying only the 50% (B Trust portion) will get step-up in basis and the other 50% (A Trust portion) has to pay the capital gain tax based on the original purchase price! That will incur significant amount of capital gain tax because of the value appreciation.
This doesn't sound right. But I want to clarify and get the right answer. Thanks in advance!
A: Any part of the house funded into the B Trust will not get a step-up in basis. Depending upon many circumstances, many people are deciding they do not want a bypass trust, and often times, it is not necessary. You should speak to a trust administration attorney for more advice as it may be possible to petition a court to terminate it.
Nina Whitehurst agrees with this answer
A: In a community property state, such as California, the house will receive a step up in its cost basis from acquisition cost to its fair market value when the first spouse dies. When you sell the property, you’ll only pay capital gains tax on the difference between the net sales price received less the new stepped up cost basis. The A Trust will report its 1/2 of the gain on the survivor’s 1040 tax return and Trust B will report its 1/2 of the gain on the trust’s 1041 tax return.
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