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Help - question about taxes on a trust property sale (1 Viewer)

The Ref

The Ref

Footballguy
In before the "you should definitely ask a football message board and not a tax professional"

Long story short My Mother In Law has one "real" asset left in her name.  There is a building near Boston that is in a trust and she owns 70% of said trust.  She and the business partner have agreed to sell the building.  The building was put into the trust with a value of $250k.  They are going to sell the building after all broker fees for $750k.

so now my question is who and how are the taxes paid on the $500k capital gain?

 
I ask because if it's a revocable trust, I believe the tax liability goes to the person(s) who provided the property to the trust.  If it's irrevocable then I believe the tax liability stays with the trust.  

 
The Commish said:
I ask because if it's a revocable trust, I believe the tax liability goes to the person(s) who provided the property to the trust.  If it's irrevocable then I believe the tax liability stays with the trust.  
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I believe it's a irrevocable trust.  

If thats the case the trust ships off ~$100K to Uncle Sam and my MIL gets 70% of $400k?  No tax liability on her part?

 
i have limited experience, but trusts don't have ownership, do they?  for revocable, the asset gets deeded to the trust, so maybe you mean the asset is owned 70/30?  the grantor is tax liable if alive based on today's value.  if dead, bennies would be liable i think.

 
The Ref said:
I believe it's a irrevocable trust.  

If thats the case the trust ships off ~$100K to Uncle Sam and my MIL gets 70% of $400k?  No tax liability on her part?
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Irrevocable trusts are separate entities.  So the proceeds from the sale go to the trust and the trust has to pay the taxes.  So in this case the trust gets more cash after liquidating an asset.  To get a distribution the trust will issue a K-1 form.  She will be required to pay taxes on the income but not the principle.  So I think she pays taxes on her portion of $500K.  

 
The Commish said:
Irrevocable trusts are separate entities.  So the proceeds from the sale go to the trust and the trust has to pay the taxes.  So in this case the trust gets more cash after liquidating an asset.  To get a distribution the trust will issue a K-1 form.  She will be required to pay taxes on the income but not the principle.  So I think she pays taxes on her portion of $500K.  
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So it's taxed twice?  The trust pays taxes and then she pays taxes on the distribution?

 
The Ref said:
So it's taxed twice?  The trust pays taxes and then she pays taxes on the distribution?
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The individuals are taxed once, but there are multiple taxes between sale and getting the dough in your hands, yes.  The trust's tax rate is pretty low though.

 
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The Commish said:
The individuals are taxed once, but there are multiple taxes between sale and getting the dough in your hands, yes.  The trust's tax rate is pretty low though.
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Ahh - that makes sense.  I found it a bit hard to believe that she would have to pay 30% within the trust and then another 30% personally.

 
The Ref said:
Ahh - that makes sense.  I found it a bit hard to believe that she would have to pay 30% within the trust and then another 30% personally.
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This is my recollection...full disclaimer ;)

Now, if they are liquidating the trust or something, that's probably a whole other can of worms, but if this is just a standard transaction in a trust and it's going to stay in tact, I think what I'm telling you is correct.  We have some tax gurus around here that might be able to shed more light on the subject.

 
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