Q: My father recently died and has left his California home to us through a living trust. When we transfer the real property out of the trust and into our individual names, will we have to pay capital gains taxes?
A: My condolences on the death of your father.
Typically, the estate would pay any federal estate taxes or state taxes owed on the property. What your father did by establishing the trust was allow you to bypass probate.
When you inherit property, you inherit it at its current market value. So, let’s say the property was worth $100,000 when your father died, if you turned around and sold it for $100,000, you’d owe nothing in taxes.
If you hold onto the property for a year or more after his death and then sell it for $150,000, you’d owe long-term capital gains tax (up to 15%) plus state tax on the $50,000 profit.
Please talk to an accountant or estate attorney for more details. You should also determine whether there is any need to take the property out of the trust. If you plan to sell the property, you can keep the property in that trust until the sale. If you need to have the property in each of your names, you should determine the reasons for the change and discuss your options with an estate planner or attorney.
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