FEDERAL TAX QUESTION.  MY HOUSE IS TITLED IN THE NAME OF FIVE TRUSTS -
ONE FOR EACH KID.  IS EACH TRUST ENTITLED TO THE $250,000 EXEMPTION
UPON SALE OF RESIDENCE.  PLEASE TRY TO REFERENCE SPECIFIC TAX CODE
SECTION.  THANKS

Well-known real estate writer Robert Bruss addresses this question in
a column published by Florida Today (5/28/00) and available on the web
site of Spacecoasttimes.com. Assuming that each co-owner of the
property meets the IRS' occupancy requirements, Robert Bruss states,
"Each co-owner can claim up to $250,000 principal residence sale
tax-free profits."
For the complete article, please visit:
http://www.spacecoasthomes.com/financing/bruss/qa/2000/qa052800a.htm

Another article, entitled "Co-owners can use $250,000 tax break," 
(SouthCoast Today, 9/30/00) asserts: "Internal Revenue Code 121 is not
limited to just single homeowners and married couples. Presuming each
of you meets the two-out-of-last-five-years occupancy requirement,
each of you [co-owners] can claim your share up to $250,000 tax-free
profits."
For the complete article, please visit:
http://www.s-t.com/daily/09-00/09-30-00/t03ho137.htm 

Also, according to an article entitled "Realty Tax Tips: Plan Wisely
Before Selling and Give Yourself a Nice Tax Break," available on the
web site of ckland.com:
"When two or more unmarried co-owners each meet the ownership and
occupancy tests, each co-owner can claim up to $250,000 of tax-free
sale profits when the home is sold."
For the complete article, please visit:
http://ckland.com/cgi/thru/news/?sect=view&tid=48
      
As mentioned in the three articles quoted above, this matter is
governed by Internal Revenue Code section 121. The entire tax code is
available online in several formats. Here is IRC section 121 as
provided by Cornell University's law school:
http://www4.law.cornell.edu/cgi-bin/htm_hl?DB=uscode26&STEMMER=en&WORDS=121+&COLOUR=Red&STYLE=s&URL=/uscode/26/121.html#muscat_highlighter_first_match

Google search terms: "capital gain" home sale exemption co-owners
://www.google.com/search?hl=en&lr=&client=googlet&q=%22capital+gain%22+home+sale+exemption+co-owners&btnG=Google+Search

I hope this helps. Good luck.

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Request for Answer Clarification by blder34-ga on 20 May 2002 18:25 PDT

I APPRECIATE YOUR RESEARCH.  THE SPECIFIC PROBLEM THAT I HAVE IS THAT
OUR RESIDENCE IN TITLED IN THE NAME OF FIVE TRUSTS - EACH FOR ONE OF
MY KIDS.  IF THE HOUSE IS SOLD DOES EACH ONE OF THERSE TRUSTS GET THE
$250,000 EXEMPTION.  ARE THE TRUSTS TREATED THE SAME WAY AS IF THE
HOUSE WERE OWNED IN THE INDIVIDUAL NAMES OF MY KIDS?  THANKS

---

Request for Answer Clarification by blder34-ga on 20 May 2002 18:30 PDT

AFTER READING SOME OTHER RESPONSES I WANT TO CLEARIFY THAT THE
RESIDENCE WILL BE SOLD BEFORE I DIE(HOPEFULLY) IN THE NEXT FEW MONTHS.
 JUST WANT TO KNOW HOW THE FIVE TRUST WILL BE TAXED.  OBVIOUSLY, THE
GAIN IS QUITE LARGE AND i WOULD LIKE TO KNOW IF EACH TRUST IS ENTITLED
THE THE $250,000 EXEMPTION.  THANKS AGAIN

---

Clarification of Answer by juggler-ga on 20 May 2002 19:14 PDT

The commentators above clearly interpret Revenue Code Sec. 121 to mean
that EACH co-owner is entitled to his/her own exclusion up to
$250,000. If you're wondering whether a trust can be considered an
owner (or, in your case, co-owner) entitled to the exemption, read the
Q&A at the bottom of this page:
http://www.taxmama.com/AskTaxMama/127/irrev.html

The attorney answering that question is saying that whether a trust
can claim the exclusion depends upon the trust. If it's a grantor-type
trust (and the grantor meets the owner-occupancy requirements), then
the exclusion would probably apply.

Hi blder34.

While juggler has given all good references concerning the exemptions
afforded under Section 121 of the IRS Code, more on point with your
situation would be inheritance tax and trusts.

On inheritance, the IRS link below states that "generally, ...
inheritance ... is not taxable ... unless it later produces income..."
but it also states that "the income from property ... donated to a
trust ... is taxable":
http://www.irs.gov/formspubs/display/0,,i1%3D50%26genericId%3D80174,00.html

Here's Pub 559 for survivors, executors and administrators which gives
you a some information on this issue:
http://www.irs.gov/pub/irs-pdf/p559.pdf

and Pub 950 "An Introduction to Estate and Gift Taxes"
http://www.irs.gov/pub/irs-pdf/p950.pdf

Various sections of Title 26 of the US Code outline the same
information as contained in the IRS pubs, but the IRS language is a
bit more explanatory, giving examples and adding more understandable
terms for the layperson.

Honestly, I don't know if trusts would even qualify as being part of
an estate.  An attorney (perhaps Tom) would be in a better position to
respond.  However, I would recommend strongly that you consult with a
tax professional/advisor (tax/estate attorney or CPA) to gain a better
understanding of the tax consequences, if any, in your situation.

-Tracker-

PS:  I provided the foregoing response assuming that you have set up
these trusts in the event of your death, hence, my references to
"estates" and my attempt to provide you with information on tax
consequences on that issue ... I apologize for getting a little off
track from your question.

On strictly the exemption issue, as already answered by juggler, EACH
child would have to have resided and used the property as their
principal residence for 2 of the last 5 years from the date of their
ownership, and they would only qualify when they sell the property. 
The sale of the property must have been made for $250K or less, as you
can only claim one exemption per property.  No portion can be utilized
for business purposes to claim the full exemption.  [26 USC 121 a/k/a
Taxpayer Relief Act of 1997]  All sellers are required to sign a
Certification at the time of closing attesting to the above facts - if
no such Certification is received, a 1099-S (proceeds from a real
estate transaction) will be issued.

-Tracker-

Hi again Blder 34.

I believe there is a slight misunderstanding here.  Each trust is not
entitled to a $250K exemption.  Here's the way it works ... the
selling price has to be $250K or under in order for all sellers to
claim a full exemption and all sellers have to be occupants of the
home (utilize it as their principal residence) for 2 of the last 5
years from their date of ownership in order to claim the exemption (or
portion thereof).  Whether or not a "trust" qualifies as true
ownership may be determinable by state.  If the selling price would be
over $250K, each trust or owner would be responsible for their pro
rata share of the selling price in excess of the $250K.  You are only
allowed one $250K exemption per home.

As far as tax consequences for each trust, I defer to my prior
ignorance.  I honestly wish I was more familiar with this to be able
to advise you better but I do believe and recommend that you consult
the appropriate professional, who would be in a better position to
give you the best options for what it is you wish to accomplish.

-Tracker-