Alex Daredia
Watson Realty | Broker-Associate | DRE #02035436
383+ homes sold across Kern & Tulare County. Former banking professional turned Broker-Associate, specializing in strategic pricing, investment analysis, and creative financing.
The median sale price for a home in Bakersfield, CA is around $419,800 right now. If you're selling a house held in a family trust, the first thing you need to understand is how the IRS and the California Franchise Tax Board view that number - because that's where your tax liability starts.
Selling trust property isn't the same as selling a house you own in your own name. The type of trust, what the original owner paid for the property, and whether the person who created the trust is still alive all factor into how much you'll owe in capital gains taxes.
A capital gain is the difference between a property's cost basis and what it sells for. In Bakersfield, homes are spending roughly 35 days on the market before selling, which gives trustees a real window to sit down with a tax professional before closing - don't waste it.
The cost basis is typically what the original owner paid, plus the cost of any major improvements made along the way. Buy a house decades ago for $100,000, sell it today for $419,800, and you've got a capital gain of $319,800. That's the number the IRS cares about.
Where it gets more complicated is when a trust is the seller. Individuals report capital gains on their personal tax returns. Trusts sometimes file their own separate returns and pay taxes directly out of the trust's assets. Trustees have to nail down the correct basis before distributing proceeds to beneficiaries - because an unexpected bill from the IRS or the state is not how you want to close out the administration of an estate.
The IRS treats revocable and irrevocable trusts very differently, and which type you're dealing with changes almost everything about how the sale gets taxed.
With a revocable trust, the grantor - the person who created it - keeps full control over the assets while they're alive. Because they can change or cancel the trust at any time, the IRS still considers the property to be theirs. Income and capital gains from any sale flow directly to the grantor's personal tax return. The trust itself pays nothing.
Irrevocable trusts are a different animal. They're separate legal entities with their own tax identification numbers. Once a house goes into an irrevocable trust, the grantor gives up control, and the trust becomes responsible for the taxes. The thing to know here is that irrevocable trusts face compressed tax brackets - they hit the maximum federal tax rate at a much lower income threshold than an individual would.
If the grantor is alive and the trust sells a Bakersfield home, the grantor reports the transaction exactly as they would if they owned the property individually. The trust pays no taxes on the sale.
When the grantor dies, though, the revocable trust typically becomes irrevocable - and the tax rules shift with it. From that point on, the trust or the beneficiaries are on the hook for any future gains.
When an irrevocable trust sells a property, the trustee has to file a specific tax return for the trust. If the sale proceeds stay inside the trust, the trust pays the capital gains tax out of those funds.
If the trustee distributes the proceeds to the beneficiaries in the same tax year, the tax liability usually shifts to them instead.
Bakersfield home values have appreciated about 110% cumulatively over the past decade, outperforming the national average. That kind of long-term growth is exactly why the step-up in basis matters so much to heirs who are selling an inherited home.
When the creator of a revocable trust passes away, the property's cost basis resets to its fair market value on the date of death. That's the step-up. To put a number on it: if a parent bought a Bakersfield home for $150,000 and it's worth $392,105 when they pass away in 2026, the new basis is $392,105. If the trust sells the home immediately for $392,105, the capital gain is zero.
All the appreciation that built up during the grantor's lifetime? Gone from a tax standpoint. Beneficiaries only owe capital gains tax if the property keeps climbing in value between the date of death and whenever they sell.
Around 998 homes were sold in the Bakersfield area recently, and for trust sales, the question of who writes the check to the IRS comes down to one thing: how the proceeds are distributed. The trust document dictates whether the trustee should hold the sale proceeds or send them out to the heirs.
If the trust keeps the money, the trust pays the tax at trust rates. If the funds go out to the beneficiaries, they pay at their individual rates. It sounds simple, but the difference in tax cost between those two paths can be significant.
A trustee might hold funds in the trust to pay off debts, manage ongoing investments, or follow specific instructions the grantor left behind. In that case, the trust files Form 1041 and pays the tax directly.
Because trust brackets are so compressed, keeping the money at the trust level often produces a higher overall tax bill than distributing it would.
When the trustee distributes the sale proceeds, each beneficiary receives a Schedule K-1 outlining their share of the capital gains. They then report those gains on their personal income tax returns.
Individual tax brackets are generally more favorable than trust brackets, which means distributing the proceeds - when the trust document allows it - can lower the total tax paid across the board.
The IRS Section 121 exclusion lets single homeowners exclude up to $250,000 of capital gains on the sale of their primary residence - up to $500,000 for married couples filing jointly. The requirement is that the seller owned and lived in the home for at least two of the five years before the sale.
If the property sits in a revocable grantor trust and the grantor lives there, the IRS still treats the grantor as the owner. That means the grantor can claim the $250,000 or $500,000 exclusion when the trust sells the home - same as if the property were titled in their name.
Irrevocable trusts and beneficiaries who didn't live in the property generally can't touch the Section 121 exclusion. If you inherit a trust property and sell it without having used it as your primary residence, you'll owe taxes on any gains above the stepped-up basis.
California doesn't have a separate capital gains tax rate. The state taxes all capital gains as ordinary income, with 2026 marginal rates ranging from 1% up to 13.3%. Single filers in 2026 pay 9.3% on income between roughly $73,784 and $377,778, and the top 13.3% rate kicks in on income over $1,000,000. There's no preferential rate for long-term gains here - unlike federal law, California doesn't make that distinction.
The California Franchise Tax Board requires tax withholding on the sale of real property. The escrow agent withholds either 3.33% of the gross sale price, or 12.3% of the estimated gain for trusts, and sends it to the FTB using Form 593. Think of it as a prepayment - it counts as a credit when you file your state return, and the FTB refunds whatever's left over. Withholding isn't required if the sales price is $100,000 or less, or if the seller certifies an exemption on Form 593.
Trustees should get with their escrow officer early. These state requirements have real deadlines tied to closing, and sorting them out at the last minute is avoidable.
Yes, property held in a revocable trust receives a step-up in basis upon the grantor's death. The property's tax basis resets to its fair market value on the date the grantor passes away. This eliminates the capital gains tax on appreciation that occurred during the grantor's life.
It depends on how the trustee handles the sale proceeds. If the trust retains the money, the trust pays the tax at its own rates. If the trustee distributes the proceeds to the heirs in the same tax year, the beneficiaries report the gains on their personal tax returns using a Schedule K-1.
A revocable grantor trust can use the Section 121 exclusion if the grantor meets the requirement of living in the home for two of the past five years. Irrevocable trusts and non-occupant beneficiaries selling an inherited trust property generally cannot claim this primary residence exclusion.
A revocable trust passes the tax liability directly to the living grantor's personal tax return. An irrevocable trust is a separate entity with its own tax ID, meaning it files its own return and is subject to compressed tax brackets that reach maximum rates much faster than individual brackets.
California taxes capital gains as ordinary income, with 2026 marginal rates ranging from 1% up to 13.3%. Escrow will withhold either 3.33% of the gross sale price or 12.3% of the estimated gain for the Franchise Tax Board, which you claim as a credit when filing your state return.
The California state withholding is collected by escrow at the time of closing and sent to the FTB. The remaining federal and state income taxes are due when the trust or the beneficiaries file their tax returns for the year in which the sale occurred.
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