capital gains tax liability of living trust

[captainsmith]

What is the name of your state (only U.S. law)? CO
My Mother put her home and a rental home into a living trust. The trust had to sell the rental home to pay for her care. Rental home sold for $400K; originally cost $100K 30yrs. ago. $50K of the proceeds was spent on her care until she died. She died this year leaving the balance + her home in the trust. I am the beneficiary. How is that taxed? How about when my Mother's home is eventually sold?

[curb1]

If the rental was sold before her death then there are capital gains taxes due on the $300,000 "profit" (ouch !!!). It was a (big) mistake to have sold the rental before her death, if that is what happened. There would be no capital gains tax if sold after her death. The only tax on the home will be the difference (if any) between the value at time of death (stepped up basis) and any increased value at the time it is sold.

It doesn't matter that "$50K of the proceeds was spent on her care until she died" as far as tax liability.

[anteater]

Figuring the tax on the rental property is not as simple as taking the difference between original cost and the net sale proceeds. Capitalized improvements and depreciation have to be taken into consideration.

See a tax professional.

[curb1]

Anteater,
I realize what you are suggesting. There are many things involved including depreciation recapture which would add to the tax liability. I was suggesting basically what is the situation. It is not that difficult of a tax situation that a decently versed person could figure out on their own. But if a person has no tax skills/accounting skills, yes they should seek help.

[captainsmith]

I was afraid we would have to take the c.g. hit on the rental property which was sold while Mom was still alive. But at the time needed the $ for her care and no idea for how long. What I was getting at was if the trust was more like an IRA; meaning you pay the tax when the $ is taken out of the account. So I thought possibly we would only owe on the 50K spent and the rest was still in the trust and therefore not taxable. You've answered that question-that is not the case-and we are liable for the full capital gains.
As to the future sale of her home, I basically followed what was written. I guess whether we will need a professional depends on how much time passes and if any changes need to be made. Again, thank you for your assistance.

[curb1]

You will need to pay the capital gains with a "final" Form 1040 this year (depending on when death occurred).