Q: My wife and I have a revocable trust that holds the deed for our primary residence and an investment rental property.
My wife and her son bought an additional rental property with the deed in their names. What are the tax considerations of leaving that property separate from the trust vs transferring the deed to the trust. Her son is the executor of the revocable trust.
The tax considerations of leaving the rental property in your wife and her son's names versus transferring the deed to the revocable trust will depend on several factors, including the ownership percentage, rental income, and capital gains implications. Here are some general tax considerations:
Ownership percentage: If your wife and her son both own the rental property, they will be responsible for reporting the rental income and expenses on their individual tax returns. However, if the rental property is transferred to the revocable trust, the trust will become the owner of the property and will be responsible for reporting the rental income and expenses.
Rental income: If your wife and her son continue to own the rental property outside of the revocable trust, they will need to report the rental income and expenses on their individual tax returns. However, if the rental property is transferred to the revocable trust, the rental income and expenses will be reported on the trust's tax return.
Capital gains implications: If your wife and her son decide to sell the rental property, there may be capital gains tax implications. If the property is sold outside of the trust, they will each be responsible for reporting their share of the capital gain on their individual tax returns. However, if the rental property is transferred to the trust, the trust will be responsible for reporting the capital gain on its tax return.
It is important to note that transferring the rental property to the revocable trust may have estate planning benefits, such as avoiding probate and simplifying the distribution of assets upon death. However, it is recommended that you consult with an experienced estate planning attorney and tax professional to determine the best approach for your specific situation. They can help you assess the tax implications and guide you through the transfer process.
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