Yes, you can still use your $500,000 capital gains tax exclusion on the sale of a property held in a trust in California, provided that you meet certain conditions. The primary requirement is that the trust must be a revocable living trust, and you must have lived in the property for at least two of the five years before the sale.
In a revocable living trust, the trustor (the person who creates the trust) retains control over the assets in the trust and can modify or revoke the trust at any time. When a property is held in a revocable living trust, the trustor is still considered the owner of the property for tax purposes. Therefore, if you meet the residency requirement, you can exclude up to $250,000 of the gain from your taxable income if you are single, or up to $500,000 if you are married filing jointly.
However, if the trust is an irrevocable trust, the trustor gives up control of the assets and cannot make changes to the trust without the consent of the beneficiaries. In this case, the trust itself is considered the owner of the property, and the trustor may not be able to claim the capital gains exclusion.
It is important to consult with a tax advisor to determine your specific eligibility for the capital gains exclusion when selling a property held in a trust. They can review the terms of the trust and your residency history to confirm whether you qualify for the exclusion and guide you through the necessary steps to claim it.