estate

[dor1500]

I know an heir can deduct real estate taxes of an inhereited home but can they deduct costs of keeping up home such as utilities?

[Koss]

Estate

Are you talking about a deduction on the estate tax return, or on the 1040 that is filed by the heir?

BMK

[dor1500]

I am asking about the estate return of the heir, thank you!

[Bees Knees]

I am asking about the estate return of the heir, thank you!

An heir does not file an estate return for himself or herself, unless the heir also is deceased.

The estate return for the decedent can deduct the cost of utilities, etc. provided the home is still owned by the estate and is not being used by the heir as a personal residence. If the heir inherits the house (the estate does not sell it), then the house becomes the property of the heir, and deducting expenses on the heir’s individual tax return depends on whether or not he or she uses it as a personal residence or as investment property.

Another issue is to determine the ownership of the house prior to death. If the decedent and the heir owned the home as joint tenants with right of survivorship, the house does not go into the estate at death, but rather automatically passes to the heir as the surviving joint tenant. Thus, any cost of utilities would be deductible or non-deductible, depending on how the heir uses the house.

[Koss]

Expenses

I don't see utilities or other expenses of upkeep, such as landscaping, as being deductible for the estate except under a very, very narrow set of circumstances, and even then it's highly debatable. I think there was earlier thread on this, somewhere...

If the estate has rented the property to a tenant, then clearly those expenses are deductible, just like they would be on any Schedule E.

The expenses are arguably deductible if the property is not rented, but the fiduciary is making a serious, legitimate effort to get it rented, i.e., running ads, or placing it with a real estate management firm with the objective of getting it rented.

The only other scenario I can imagine where some utilities might be deductible would be a bit of a stretch...

If the house is not on the market to be rented, but it IS on the market to be sold, and it is unoccupied...

Well, what if you have to keep the gas on, with minimal heating, say, to 55 or 60 degrees, in order to:

(a) prevent the pipes from freezing, and
(b) make it feasible for realtors to show the property to potential buyers

Particularly with respect to preventing pipes from freezing and bursting, there might be an argument that because the executor of the estate has a fiduciary duty to preserve the assets of the estate, that this is a legitimate, ordinary and necessary expense...

But I'm not really sure about this. I'd have to really dig into it. There may be some overriding principle that you just can't deduct expenses that would be personal living expenses of the decedent if they were still alive...

In other words, the scenario might change a bit if the real estate in question were a business asset, such as a small auto repair shop that the decedent owned as a sole proprietor.

BMK

[Bees Knees]

I don't see utilities or other expenses of upkeep, such as landscaping, as being deductible for the estate except under a very, very narrow set of circumstances, and even then it's highly debatable. I think there was earlier thread on this, somewhere...

If the estate has rented the property to a tenant, then clearly those expenses are deductible, just like they would be on any Schedule E.

The expenses are arguably deductible if the property is not rented, but the fiduciary is making a serious, legitimate effort to get it rented, i.e., running ads, or placing it with a real estate management firm with the objective of getting it rented.

I disagree that the house needs to be rented first.

IRS Pub 559 says:

Sale of decedent’s residence. If the estate
is the legal owner of a decedent’s residence and
the personal representative sells it in the course
of administration, the tax treatment of gain or
loss depends on how the estate holds or uses
the former residence. For example, if, as the
personal representative, you intend to realize
the value of the house through sale, the resi-
dence is a capital asset held for investment and
gain or loss is capital gain or loss (which may be
deductible). This is the case even though it was
the decedent’s personal residence and even if
you did not rent it out. If, however, the house is
not held for business or investment use (for
example, if you intend to permit a beneficiary to
live in the residence rent-free and then distribute
it to the beneficiary to live in), and you later
decide to sell the residence without first con-
verting it to business or investment use, any gain
is capital gain, but a loss is not deductible.

Note that converting the house to rental property is not a requirement.

Now I understand that this paragraph is talking about it being a capital asset for purposes of deducting a loss on the sale. However, the same rule would apply for deducting expenses prior to its sale. If it is a capital asset held for investment for purposes of being able to deduct the loss on the sale, then it is also a capital asset held for investment for purposes of being able to deduct investment expenses. No different than any other investment property.

[Burke]

The expense of necessary upkeep of a house while it is in the estate while awaiting sale is a deduction.

[JON]

As long as we are on this subject

what do you do with mortgage interest? What if there is no investment income? I think you are not supposed to use it as part of excess deductions on the final return... PPC says this is an error in regs as far as they are concerned, but I wish I had more tax authority then that.