Grantor trust: no change in lifetime taxes
A revocable living trust is treated as a grantor trust for income tax purposes during the grantor's lifetime (IRC 676). All income and deductions flow directly to your personal return — you report rental income on Schedule E exactly as before. There is no separate tax ID number, no separate tax return, and no change in tax treatment.
Transferring rental property into your revocable trust does not trigger a taxable sale, does not reset depreciation, does not affect your adjusted basis, and does not trigger any 1031 exchange deadlines. For income tax purposes, it is as if the trust does not exist.
Depreciation, basis, and recapture
Because the grantor trust is transparent for tax purposes, depreciation continues without interruption. Your accumulated depreciation is tracked exactly as if you held the property directly. When you sell, recapture is calculated the same way — there is no basis reset simply because the property is in a trust.
At the grantor's death, a revocable trust becomes irrevocable. The property at that point is generally included in the estate and receives a step-up in basis to fair market value under IRC 1014 — the same step-up that would apply to directly-held property.
What a living trust does and doesn't do for investors
A revocable trust's main benefits are non-tax: it avoids probate, allows seamless transfer to heirs, and maintains privacy. For real estate investors, it can simplify multi-state property transfers (avoiding ancillary probate in each state where the property is located).
What it doesn't do: provide asset protection (a revocable trust offers no creditor protection), reduce estate tax, or provide any income tax benefit. Investors who want liability protection should consider a separate LLC. Investors seeking estate tax planning have other tools (irrevocable trusts, family limited partnerships).
Frequently asked questions
Do I need a new EIN for a living trust that holds rentals?
No. A revocable grantor trust uses the grantor's Social Security Number during their lifetime — no separate EIN is required.
Does transferring property to my living trust trigger recapture?
No. A transfer into a revocable grantor trust is not a taxable event.
Does property in a living trust get a step-up in basis at death?
Generally yes — property in a revocable living trust is included in the gross estate and receives a step-up to FMV at death.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.