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Member
Group: Forum Members
Last Login: 9/14/2009 10:11:45 AM
Posts: 2,
Visits: 6
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| Mother sets up a living trust, then dies, leaving her house to her children, X, Y & Z. There is no debt on the property at any time. X is the successor trustee. Z has lived with mother for the past 35 years and continues to live alone in the residence after mother's death. The house remains in mother's trust for 5 years (while unrelated disputes between X, Y & Z were being settled), and then sold.The proceeds are distributed equally between X, Y & Z. There is total gain of (using stepped up basis) of $150K. The trustee issues K-1's to each beneficiary reporting their respective share of the gain. Z wants to claim the Sec 121 exclusion for gain on sale of principal residence becasue he lived in the residence for 2 of the past 5 years. He is arguing that even though he is not on title that his beneficial ownership of 1/3rd of the residence entitles him to receive the exclusion. Rev Rul 85-45 indicates that a sole beneficiary is treated as the owner and would therefore qualify for the Sec 121 exclusion, but it does not address a split-ownership scenario. What do you think? Bob Abelson, CPA Torrance, CA
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