Q: I am trustee of my father’s trust. Upon his death, his 50% interest in the home he shared with my stepmother was transferred to the trust. We had the house appraised at the time of his death. We are now selling the house, and therefore the trust’s share of proceeds are going to be but 50% of the idea of the house at the time of my father's death.

Can the trust claim a financial loss since the trust didn't use the house as a residence? The terms of the trust allowed my stepmother to continue living within the house, but she had to pay all upkeep expenses, land taxes and mortgage payments.

A: Let’s start by talking generally about profits and losses on the sale of a primary residence. If you sell your primary residence and lived in that home for two out of the last five years, you get to exclude from any federal income taxes up to $250,000 of profit if you are single and up to $500,000 if you are married. However, if you lose money on the sale, you can’t take that loss, and that loss generally doesn’t have any impact on your federal income taxes.

Now, when you own a property as an investment, then you pay taxes on the profits when you sell the property, and you might be able to benefit from the losses on your federal income tax return. However, nothing is straightforward when it involves federal income taxes on investment properties, particularly when it involves more complicated estate matters.

Your question involves a trust, and we presume that the trust you are talking about was not a personal trust that many people have when they own a property during their lifetime. This particular trust became the owner of the property at the time of the homeowner's death. Presumably, the trust was found out this manner to shield it from some federal income taxes, to guard against creditors or another financial benefits differing types of trusts can give trust owners and their descendants.

Now, your dad owned only half the house . The other half is owned by your stepmother. We aren’t sure we see this property falling into the category of an investment property, although a smart tax or estate attorney might be able to make the case. Here is our thinking: You likely aren’t leasing the property to your stepmother, as she is an owner of the property and is paying all of the expenses of the property. So, the trust has received no income from the property and has incurred no expenses during the ownership of the property.

That typically isn’t how an investment property works. In a more typical arrangement, the trust would own the whole property, your stepmother would have had to rent the property from the trust, and there would wish to be documentation backing up the arrangement, at the smallest amount .

You should talk to your accountant or tax adviser, but it seems to us from the limited information that you have provided, you might not benefit from a loss on the sale of the property.

Depending on the sort of trust and other assets held within the trust, you would possibly ask your tax adviser if there's a provision within the tax code that would potentially aid you within the sale if you've got other gains from the sale of other trust assets.