Any tax experts on 5 x 5 trust (pay, taxes, credit, income)

[grannynancy]

I am the beneficiary trustee of a trust. My father and mother have separate trusts, my father has passed away and my mother is alive. The house is in my father's trust. My mother receives an income and his trust remains in place, is not accessible to me, (and is accessible for her to pay for her needs in the event her trust is exhausted) until her death at which time the house is fully mine. I am on the title as a trustee. I occupy the house with my mother who is now in hospice stage of her life, having had a massive stroke 7 years ago.

I would like to (at my expense) replace the dead HVAC with an option that allows me to take the residential energy tax credits for a more efficient system. His Trust does not pay enough in taxes to take advantage of these credits but I do.

Does the government treat me as an owner who can take the credit or a rentor who cannot? If you know the answer do you have something you can point me to in that regard. The banker is also asking her tax folks. The HVAC company told me that whoever pays for the system takes the credit but I am not convinced as a rentor cannot. Am I a rentor or am I a homeowner in the eyes of the IRS.

EDIT- I cannot change the title and it is a 5 x 5 trust in that it has provisions for her income.but the more relevant question is the tax one. The 5 x 5 regards distributions to my mother during her life. Both trusts dissolve on her death.

[synchronicity]

If the house is owned by the trust, and the trust is not a "grantor trust" with regards to you, then you are not the owner of the house and would not be able to take the credit. Given that you have indicated that the trust files its own tax return, that would make it a separate tax payer and not a "grantor trust" with regards to you. (If it were a grantor trust, you would include all trust income in your own tax return).

Given the fact pattern as you lay it out there are other reasons to assume you are not the owner of the home for tax purposes (regarding relationship of you to the trust), but that's probably the simplest example. The trust is the owner. The fact that you are trustee means that you wear the "trustee hat" when dealing with the trust, but that is separate from the "individual hat" you wear when you file your own return. All that said, I am obviously not privy to the specifics of the trust language and am only going by the limited information you've supplied in your post.

I am far from an expert on the issue of the residential energy credit, but a quick read through the instructions for the form pertaining to it indicates that only an "owner" can claim the credit. As noted, for income tax purposes you do not appear to be an owner of the house.

The "5x5" issue is language that is often inserted into a trust to prevent adverse gift tax consequences. I rarely hear such trusts referred to as "5x5 trusts" but some people might refer to them in that manner. Just an aside.

Circular 230 Disclaimer - talk to real tax peeps rather than taking the word of some idjit on the intermawebz. The IRS won't care what you read on some forum if they audit you. I'm not advising you and could be a trained ferret randomly hitting the keyboard for all you know.

[Big G]

I think you're correctly assessing the situation. You don't (yet) own the house, so you're probably out of luck for the tax credits.

The HVAC company is just trying to make the sale - they have no way to know your financial setup.

[grannynancy]

Thanks. That is the conclusion I have reached on my own....The institutional trustee is also researching it.

This is a reality check while I am waiting to hear from the pros. That is correct it files its own return and does not impact my own personal taxes.

It is an unusual situation.