Will Gain on Sale of Home in Revocable Trust be Short-Term or Long-Term?
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Question:
Last October, I set up a revocable trust and transferred a vacation home located in Massachusetts into it. However, I recently received an unsolicited offer to purchase the property that would result in a substantial capital gain liability. Would the capital gain be considered short-term due to the transfer to the trust in October, or would it still be considered long-term since I have owned the property since 1999?
Response:
The good news, in addition to the offer to purchase your property, is that the capital gain will be treated as long-term. For tax purposes, you’re still considered the owner of the property even though title is in the revocable trust. So there was no change of ownership that would subject the sale to short-term capital gains tax rates.
This is likely to result in substantial savings, since short-term capital gains are taxed like normal income at income tax rates up to 37% depending on your income tax bracket and long-term capital gain is taxed at more favorable rates, ranging from 0% to 20%.
These are the federal rates. Massachusetts charges an additional 5% and if you’re fortunate enough to have made yourself subject to the so-called “millionaire’s” tax your income above $1 million, the excess over this amount (actually $1,083,150 in 2025 because the threshold is indexed for inflation) will be subject to an additional 4% surcharge.
Related Articles:
How are Capital Gains in Life Estate Affected by Improvements?
What Happens to Capital Gain when Joint Owner of Life Estate Dies?
Will Property in an Irrevocable Trust with a Power of Appointment Receive a Step-Up in Basis?
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