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Your sister's trust owned house does not qualify for over 55 exemption, that part of the IRCode was replaced over 12 years ago. Under the new law if an individual has lived in and owned a house for 2 of last 5 years, they may exclude up to $250,000 individual/$500,000 couple MFJ. Unfortunately, an irrevocable trust would not qualify, so the bulk of the gain would be taxed at 15%. Be happy it's 2008, very small part taxed at 0%. After 2010, if democrats win, top cap gains rate back to 20% or more.
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