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989987 No.989987 [Reply] [Original]

If a house/property is part of a revocable living trust and the granter decides to sell the house, is the money received from selling the house considered income and therefore is it taxed? Obviously the money from the sale would go directly into the trust.

>> No.990112

Grantor trusts, such as revocable living trusts, are disregarded entities for tax purposes. The trust does not file a separate tax return, and any taxable events are attributed to the grantor.

However, I don't see how the sale of a house in this situation would be considered income, unless the grantor is in the business of selling houses. AFAIK, a sale of real estate generates capital gains (or losses), not income. So the grantor would have to report the gain (or loss).

>> No.990121

>>990112
Seconded
Grantor-Beneficiary trusts like this are commonly referred to as Land Trusts or Personal Property trusts.
They are used as privacy tool not as a tax tool.

>> No.990125

>>990121
Actually they're most commonly used to avoid probate, but thanks for telling me that I'm right.

>> No.990135

>>989987
>considered income
How is this even a question? Why would this ever be income?

>> No.990180

>>990135
>Why would this ever be income?
If the sale of the real estate is considered to be a commercial undertaking, then it can be classified as income. More specifically stated, if the house or property was held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, then its not a capital asset.

Say you buy a house with the intent to fix it up and sell it in the future. You spend some time and money making improvements. Maybe you make a little side money listing the property on AirBNB while waiting for a buyer. Then you actively market and sell the house at a profit. Under these facts, there's a decent chance the IRS would consider you a "dealer" and classify the proceeds as income.

The test for whether such a sale is income or capital gains depends on a number of factors, such as the time you owned the property, any business or rental use of the property, if you've done these types of transactions in the past, the type of improvements or changes you made to the property, and the extent of your involvement in the process.

Every case is fact specific, and I don't know enough to form an opinion in OP's situation. But the question is relevant nonetheless.

>> No.990204

>>989987
Do you mean capital gains from the sale?