Sale of personal residence by trust after death

[cwatt]

My mother-in-law recently passed away (June 19) as an Illinois resident. Her home was actually owned 1/2 each by her living trust and by her deceased husband's trust (he died in the year 2000). This arrangement was put into effect in 1998 when both were still alive. Presumably that means that the basis should be 1/2 the current FMV and 1/2 the FMV as of the year 2000 when my father-in-law died.

The beneficiaries, my wife and brother-in-law, are preparing to sell the home. My understanding is that the home can be treated as investment property since there are no plans for any of the beneficiaries to reside in it. I believe major improvements to bring the home up to the village code prior to sale can be used to increase the basis (for example, we will be required to relocate the electrical service panel, which will probably be a few thousand dollars) and that selling costs would be deducted from the sales price. What about repairs like painting, carpet removal, etc. and utilities like gas and electric? Can these be deducted on Form 1041 as miscellaneous expenses subject to the 2% floor? And should all of these things be split equally between the two trusts that own them?

As an aside, no Form 706 will be needed as the assets are far below the estate exemption amount.

Thanks for the advice.

 

[tranquility]

Expenses for the management, conservation or maintenance of property held for the production of income are deductible on either the 706 or the 1041 per IRC 212.

 

[cwatt]

Thanks very much.

Since each trust owns a half interest in the property, are half the expenses deductible by each, or does it depend on which trust paid the cost of the repairs? Same question for capitalized improvements?

 

[tranquility]

Only those who paid can take the deduction. (Depreciation may be different.)

While it seems you are asking intelligent questions, you have a fairly sophisticated situation. Maybe it would be a good idea to see a tax professional this year.

This is not a private thing, it seems you are creating a partnership from the way you are going to handle things. A partnership return might be appropriate and your "capitalized improvements" would be handled in basis adjustments and specially allocated depreciation entries.