DH and I have lived in Sequim, WA since 2003 in a house owned by my Revocable Living Trust. Does the sale of a primary residence from a trust qualify for the home sale exclusion or does the house need to be titled to an individual?
The trust paid $185,000 for this house in 2003. According to Zillow, the current “Zestimate” is $515,000 which blows my mind.
DH, who is now 69 years old with COPD, is mentioning that our 1 acre property may get too much for us to maintain and we should think about downsizing in the foreseeable future.
If we purchase a different primary residence, would its cost be considered a “like kind” exchange which could be subtracted from the sale proceeds of our current primary residence, reducing the capital gain?
Washington State is a community property state. If I re-title the house from the Trust to my own name, would we qualify for the married $500,000 capital gains exclusion? Would I have to re-title the house with joint ownership and would that constitute a gift to my husband if I did?
Thanks,
Wendy
If we purchase a different primary residence, would its cost be considered a “like kind” exchange which could be subtracted from the sale proceeds of our current primary residence, reducing the capital gain?
No.
There is no ‘like kind’ exchange for a personal residence.
But there is the $250k/$500k exclusion.
Washington State is a community property state. If I re-title the house from the Trust to my own name, would we qualify for the married $500,000 capital gains exclusion? Would I have to re-title the house with joint ownership and would that constitute a gift to my husband if I did?
“For a married couple filing jointly, only one spouse has to meet the ownership requirement.”
https://www.irs.gov/publications/p523
If the house is owned by your trust, and you are the grantor, I believe you meet the ownership requirement.
Check that you meet the other requirements as well. And if so, you have $500k exclusion available to you.
BTW - If your DH dies that could be a problem for you since you wouldn’t be MFJ. But if you die, he probably inherits and gets the step up in basis.
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Only my experience, but I don’t think you have to re-title the property as individual in order to sell the residence. Not all apples to apples (me - single/home in MD) but my Washington State Revocable Trust had a home in Maryland, titled to the Trust.
I sold it in Aug 2019 still meeting MD residency reqm’ts, with no change in title, no problem. State of MD w/h taxes on sale and rejected the exclusion on tax filing, I appealed and won. Had to do with a check box that said it wasn’t my residence (true at that time 2007). They completely ignored my previous 6 years from 2017 of filing MD taxes as a resident. Of course no state tax issues in WA. My Trust uses my SSN for tax purposes if that makes a difference.
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<If your DH dies that could be a problem for you since you wouldn’t be MFJ.>
An important point! Thanks!
< But if you die, he probably inherits and gets the step up in basis.>
Currently, the house would remain in the trust. DH would be successor trustee and beneficiary but would not inherit. The purpose is to enable DH to live in the house during his life but the ownership to pass to my sister (not DH’s subsequent wife) after DH’s death.
Please explain if this arrangement should be changed.
Wendy
Currently, the house would remain in the trust. DH would be successor trustee and beneficiary but would not inherit.
Hm - not sure what the basis would be for your sister when she gets it…
But she can ask her tax advisor.
Please explain if this arrangement should be changed.
Ask a tax advisor and a lawyer that deals with estates.
After all, free advice is worth what you paid for it. 
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