Can a QTIP Trust take a Tax loss on real estate?
A QTIP Trust owns a residence that the surviving spouse lived in. She didn’t pay rent and passed away and the home was sold for a loss. Can a deduction be taken on the Trust’s tax return?
A QTIP Trust owns a residence that the surviving spouse lived in. She didn’t pay rent and passed away and the home was sold for a loss. Can a deduction be taken on the Trust’s tax return?
Permalink Submitted by mk foss on Wed, 2011-11-30 04:16
One of the IRS Service Centers issued a statement that said no loss was deductiblee in this situation because it is a personal loss.
Many feel that the residence became an investment asset upon the death of the surviving spouse and a loss would be available.
You should consult the tax advisor for this trust.
Permalink Submitted by Harold Porter on Mon, 2011-12-19 07:37
If a tax loss was elected to be taken, would it be an ordinary or capital loss? Thank You!
Permalink Submitted by Peter Lingane on Mon, 2011-12-19 16:11
A home owned by a QTIP trust receives a stepped up basis at death. If the home is sold in reasonable proximity to the date of death (I am being deliberately vague as to the timing) the sales price is arguably the best evidence for the FMV at death. In this situation, there is neither a gain nor a loss on sale. In any event, the expenses of sale are deductible as administrative expenses of the trust and are not used to increase the basis in the home.
Permalink Submitted by Harold Porter on Mon, 2011-12-19 20:30
When the home was put into the QTIP Trust upon the owner’s death it was valued at $429,000 on Schedule A of the 706 tax return. When his spouse died 10 years later, the house was sold within 6 months for $212,000, less the real estate commission and closing costs. Are you saying that only the commission and closing costs are deductible?
Permalink Submitted by mk foss on Tue, 2011-12-20 03:19
What year was the death?
If it was in 2011 or in 2010 and you did not elect modiified carryover basis, the sales price would be an indication of the fair market value at death and only the closing costs would be deductible as a capital loss.
If this was a 2010 death and modified carryover basis was elected – the QTIP property would not be the decedent’s property and the historic basis (over $00,000) plus closing costs would be the loss. Form 8939 must be filed by midJanuary to elect modified carryover basis.
Permalink Submitted by Harold Porter on Tue, 2011-12-20 07:00
I thought that Property that is not acquired from the decedent is not carryover basis property and is not reported on Form 8939. An interest in a QTIP trust funded by a predeceased spouse would not be owned by the decedent. On form 8939 it states “Section 1022 does not apply to a decedent’s interest in a QTIP trust. A recipient’s basis in this property will not be determined under section 1022.” Am I right to surmise that I can not file Form 8939? Thank you!
Permalink Submitted by mk foss on Wed, 2011-12-21 01:53
In order to use carryover basis you must file Form 8939. The QTIP property would not be included on the Form 8939. If you file nothing or file Form 706, the QTIP property is revalued using date of death values.