Q: I just sold my late father's house which was in a trust so the proceeds went to the trust. What are the tax implications

A: The tax implications of selling a house that was held in a trust can be complex and depend on various factors, including the type of trust, the terms of the trust, and the tax laws applicable to the trust and the beneficiaries. Generally, if the trust is a non-grantor trust, the trust itself may be responsible for paying capital gains tax on the sale of the property. The capital gains tax would be calculated based on the difference between the selling price and the original purchase price or the adjusted basis of the property.

Once the trust has paid any applicable taxes, the remaining proceeds can be distributed to the beneficiaries according to the terms of the trust. As beneficiaries, you and your brother would typically not pay taxes again on the proceeds received as a distribution from the trust, as the trust would have already accounted for the capital gains tax. However, if the distribution from the trust is considered income to the beneficiaries, then there may be income tax implications for you and your brother individually.

It's important to consult with a tax professional or an estate attorney who can provide advice based on the specific details of your father's trust and the current tax laws. They can help determine the tax responsibilities of the trust and any potential tax liabilities for you and your brother as beneficiaries.

A: There is a strong likelihood that the house was included in your father‘s taxable estate and, therefore, received a step up in basis as of his date of death. If the house sold for a price that was close to date of death value, chances are there was no capital gain after taking into account selling expenses. These are all guesses based upon typical circumstances. This does depend on other factors such as the type of trust.

You should consult with a tax attorney or CPA or experience trust administration attorney for help with this.

A: In California, when you sell a property held in a trust, like your late father's house, the tax implications can vary based on several factors, including the type of trust. Generally, if the trust is a revocable living trust, the sale of the house is treated for tax purposes as if the owner (your late father) sold the property. This means the trust might not owe any capital gains tax if the property was the principal residence and qualifies for the home sale tax exclusion.

However, if the trust is an irrevocable trust, the trust itself may be liable for capital gains tax on the sale of the property. The tax would be based on the difference between the selling price and the original purchase price, plus improvements (adjusted basis), unless there's a step-up in basis to the property's value at the time of your father's death.

As for the distribution to beneficiaries, generally, when you and your brother receive your shares of the proceeds, this isn't considered taxable income to you. Beneficiaries typically don’t pay tax on the money they inherit. But if the trust generates income (like from the sale of a property), and that income is distributed to beneficiaries, the trust may issue a K-1 form, which reports the income distributed to each beneficiary. You would then need to report this income on your individual tax returns.

Given the complexities of trust and estate tax laws, it's wise to consult with a tax professional or an attorney who specializes in estates and trusts. They can provide specific advice based on the details of your trust and the estate. Remember, every situation is unique and deserves careful consideration for the best tax outcome.