Does one have a year to sell an inherited house with trust before you have to pay capital gains?

Answer 1

If the house went through the estate then the basis was bumped up to the basis used for the estate (the estimated value at either the date of death or 6 months later that was used for the estate tax return). In the current real estate market with the current tiny capital gains tax its hard to imagine a gain on a sale generating much of a tax bill. If the house is in the trusts name, the trust pays the tax, if in your name you pay the tax. However, if you sell a house that wasn't your primary residence the capital gains tax is taxed in the year of the sale.

I suspect you've got this mixed up with having a year to roll over the capital gain on the sale of a primary residence into the purchase of a new primary residence. If the trust is just an estate management vehicle that liquidates when the estate tax is settled, which is common in Virginia because it lets the executor duck most of the accounting rules and all the interim reports, and if the house has been your primary residence because for example you're the spouse of the decedent, and if through the trust you're the sole beneficial owner of the house then its possible you can roll any gain on its sale over into another house. If you have this kind of well planned estate, I'm not sure why you're asking you're question here though...

You might also have this confused with a rule that sets a short time limit for liquidating an inherited IRA that has a trust as its benificiary as opposed to the more normal rules that apply when the original IRA was promptly separated into individual inherited IRAs for the trust's benificiaries.

If you've got multiple houses now, you should check with whoever does your taxes to find out the tax implications of your plans. My guess is declaring this inherited house to be your primary residence to roll over what's probably a tiny a gain over its basis from the estate would trigger an immediate tax bill for any gains rolled over into the house you lived in before you inherited this house. If gains rolled into that house have been offset by the declining real estate market you would probably have to sell that house to only pay tax on the net gain as opposed the gain that was rolled into it. This doesn't seem like a great advantage, but it all depends on your situation.