Capital Gains Tax on a House Sold From a Trust

by Alexis Lawrence ; Updated April 19, 2017

When you sell a house that does not serve as your primary residence, typically you must pay taxes on the sale of that house, just as you would for any other investment. If that house comes from an estate trust, taxes may still be due, but the taxation of that house has a different basis.

Base Value

If you buy a house for investment purposes and make a profit when you sell, you must pay capital gains taxes on the difference between the purchase price of that house and the original purchase price of the house. However, if you take ownership of a house through a trust the house changes value upon inheritance. The house is appraised at its current market value on the day of the original owner’s death, and that becomes the basis for determining profits.

Sold Immediately

If you sell a house from a trust immediately at the appraised fair market value for the house, that sale is considered an even sale. Regardless of the fact that the house likely gained value during the life of the original owner, that gain has no effect on the current standing of the house. Because the house made no profit as far as the current market value appraisal, the house’s current owner, the person who inherited the house from the trust, does not owe any taxes on the sale.

Sold Below Value

In a bad real estate market, it may not be easy to sell a house from a trust for the current appraised value of that house. In that case, the person who inherits a house may choose to sell the house for less than the house is worth on the current market. When this happens, the difference between the selling price of the house and the appraised value of the house is considered a capital loss. The person who sells the house from the trust can declare this loss on his personal tax return, and use it to offset gains.

Capital Gain

If you inherit a house from trust while in a seller’s market, or in an area where the housing market remains competitive, you can sell the house for an immediate profit. If the house sells for more than the appraised value at the time of the owner’s death, you must declare this profit as a capital gain on your tax return.

About the Author

Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.

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