In the realm of estate planning, many taxpayers don't really have their estate plan in place before they've sold their relinquished property. In the course of doing the organizational work, they may ask “can John Doe sell his relinquished property and have John Doe as Trustee of his own grantor revocable trust receive the replacement property?”
Generally, a revocable grantor trust is going to be running under the same social security number as John Doe in this hypothetical and it's going to be considered a continuation of investment by John Doe.
The same goes for a single-member disregarded entity such as a pass-through LLC that is wholly owned by John Doe. That would be another suitable way to acquire the replacement property.
Community Property States
Many of our clients have amassed wealth in real estate over a long period of time and now they're in their golden years and they may have moved to a community property state such as California, Texas, or Wisconsin. Does a taxpayer’s step-up in basis change if they’ve relocated to a community property state?
The short answer is yes. How assets transfer in terms of your estate plan are impacted by the local law and also by the federal and state taxation scheme.
So stepped-up basis is something that is a local concern as well as a federal concern. If you change your residence you need to make sure that you consult with local council to confirm that your current estate plan is valid.
Minnesota Property Considerations
In some states (like Minnesota) a lot of residents attempt to modify their residence for purposes of taxes by becoming snowbirds and permanently residing in Florida (for example) but continuing to own Minnesota real estate in pass-through entities. The current Minnesota estate tax treats any real estate owned that is located in Minnesota as a Minnesota taxable asset. So even though you are a Florida resident, if you own an apartment building or other type of real estate in Minnesota either in your individual name or in a pass-through entity, you will potentially be subject to a Minnesota estate tax.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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