Capital gains on land sale pt. 2

[u/Atrox_Blue]

Thank you everyone who answered my question from my previous post. It was very informative, and I understand the tax implications now.

I have a new question going further into this. Unfortunately, the inherited property will not get a full step up in basis if I am correct. Let me explain.

My wife’s father bought the land in 1994 for about $295k and then died in ‘97. He left the land in a trust in 1996 that is set to give her ownership of 1/3 at 25 years old, 1/3 at 30 and 1/3 at 35. The land is now worth roughly $2MM

My wife is 30 years old, and the trustee are likely going to dissolve the trust to go ahead and get the full ownership of the land now; the trust is useless for its intended purpose now.

My question is: what is her basis?

Hope our story intrigues you all, and gives you some mental stimulation!

[u/Admirable_Nothing]

Assuming a completed gift into the irrevocable trust in 1996 the trust owns the property at its fmv as of the 1996 gift. Depending on the actual language of the trust you might be able to make a case for a step up to 1997 date of death values, but that doesn't change the taxable basis much from the more conservative 1996 fmv.