Living trust can’t lessen real estate taxes

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DEAR BOB: In 1994, my wife inherited a house from a living trust. We have lived in it since then. When we took possession, it was worth $350,000. Today, it is worth about $1 million. If we sell it today, will we be free from capital gains tax because the property came out of a trust? Or would the first $350,000 be tax-free and we can add our $500,000 to that? – Michael F. DEAR MICHAEL: Congratulations on the outstanding market value appreciation in that home. The adjusted cost basis for the home is its market value on the date of the decedent's death, presumably $350,000. Purchase Bob Bruss reports online. If the net sales price is $1 million, the capital gain is the $650,000 difference between the $350,000 stepped-up basis and the net sales price. Even if the home's title is in your wife's name alone, because you both lived in your principal residence at least two of the five years before its sale, you qualify for the $500,000 married-couple exemption of Internal Revenue Cod...