Tax Exclusion also Available for Family Revocable Living Trust
Question: My wife and I have owned our Flagstaff home for more than twenty years. Several years ago we transferred the home to our family revocable living trust. We are co-trustees of this revocable living trust. If we sell our Flagstaff home we should have a capital gain of at least $350,000. Will we still qualify for the $500,000 exclusion from capital gains on the sale of our home, even though the home has been transferred to our revocable living trust?
Answer: Yes. Even though the home is titled now in the name of your family revocable living trust, when the home is sold the capital gains exclusion of up to $500,000 on the sale of a home owned at least two years by husband and wife ($250,000 for a single person) is still available.
Note: The transfer of any real property by a husband and wife to a family revocable living trust is generally not a “taxable event” for IRS purposes. A “taxable event” is an action that results in one receiving income that then may be taxed. Common taxable events are the reception of a paycheck, the sale of real property, or the sale of stock for profit. Here, no personal income was received by either you or your wife. In other words, for IRS purposes the transfer of the home to the family revocable living trust never happened, and the husband and wife that owned the real property are still deemed for tax purposes to be the owners.
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