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Question:

We have a grantor irrevocable trust from our mother. Her house is for sale and we’re not sure if a step-up in basis is an option or do we carry forward her basis if we do a 1031 exchange?

Response:

I am assuming your mother has passed away. If so, then at her death, the house should have received a step-up in basis. The same features in the trust which made it a grantor trust for tax purposes almost certainly meant that it was includible in her taxable estate. As a result of being in her taxable estate, the property received a step-up in basis. For federal purposes, it’s quite unlikely that this would mean an estate tax for your mother’s estate since, as of this writing, the threshold is $11.7 million. However, some states have thresholds as low as $1 million. To be 100% certain, you will need to show the trust to a tax attorney, but this result seems very likely.

You should be aware that President Biden has proposed eliminating the step-up in basis. While I support most of his tax proposals, this is one I cannot get behind, which I explain in this blog post.

Related Articles:

Will Property in an Irrevocable Trust with a Power of Appointment Receive a Step-Up in Basis?

Can Property in a Medicaid-Planning Trust Get a Step-Up in Basis Upon the Grantor’s Death?

What’s a “Step-Up” in Basis and Why Would You Want It?

Related Articles

Will Property in an Irrevocable Trust with a Power of Appointment Receive a Step-Up in Basis? Can Property in a Medicaid-Planning Trust Get a Step-Up in Basis Upon the Grantor’s Death? Will Property in Irrevocable Trust be Subject to Estate Taxes When the Grantor Dies?