Confused of the 1041 flow

[AZ-Tax]

With no surviving spouse, TP dies. Deceased's home was sold in 2009 after death. The difference between the appraised value of the house at date of death pluse all exps associated with selling the house and the sales price was -$50K (loss). So this was entered on Sch D which generated a $3K loss. What happen to balance of the loss of $47K?

I added all 1099-int paid after death about $3611 minus the $3K left $11 income. Then I competed the K-1 for the beneficaries yet nothing appears on the K-1. So for the heck of it I added a "fake" $1million of interest and still nothing appears on the beneficaries K-1. Why is that and what is the purpose of this K-1? Do I even bother importing a blank K-1 into the beneficaries form 1040 tax return?

Also, the beneficaries inherited a house free and clear, will they ever be taxed on the amt or are they exempt up to a certin amt?

[Burke]

The Form 1041 must be marked "Final" for the entries to flow to the K-1's. It can be marked "Initial" and "Final" in the same year. Otherwise, capital losses are limited to $3K per year and are carried over from year to year until the final return, unless they are all used up along the way. This also frees up any excess administrative expenses to flow thru to the K-1(s.) No, you would not import a blank K-1 to the 1040. No point.
See if marking it "Final" works.

[Burke]

Also, the beneficaries inherited a house free and clear, will they ever be taxed on the amt or are they exempt up to a certin amt?

Nope. The sale of the house (I assume you are talking about the same one we just discussed being reported on the 1041) got a stepped-up basis, and the loss is passing thru to them just as if they reported their share themselves. It's over and done with. If you are talking about another house or another situation, it's reported when it is sold, and cap gain/loss is calculated at that time.

[Burke]

So for the heck of it I added a "fake" $1million of interest and still nothing appears on the beneficaries K-1. Why is that and what is the purpose of this K-1? Do I even bother importing a blank K-1 into the beneficaries form 1040 tax return?

The reason nothing flowed thru to the K-1's when you put in $1M of interest, is that you probably did not complete Page 2 for Distributable Net Income, meaning no distributions were made to the benes. But there should have been one heck of a tax calculated at the bottom of Page 1 for the estate to pay.

[AZ-Tax]

Burke I got the K-1 to flow but another question...

There is 2 beneficaries and 1 of them told me that her tax person will take care of her form 1041 K-1. Wouldnt that mean that tax person would have to create another form 1041 for the same deceased person? Is this possible?

Also, does it matter how the house was titled before death meaning if it was titled in 3 names (deceased and both beneficaries), does any other form like a form 706 need to be filed?

[Burke]

There is 2 beneficaries and 1 of them told me that her tax person will take care of her form 1041 K-1. Wouldnt that mean that tax person would have to create another form 1041 for the same deceased person? Is this possible?

Also, does it matter how the house was titled before death meaning if it was titled in 3 names (deceased and both beneficaries), does any other form like a form 706 need to be filed?

1. I am assuming she just meant she would take her K-1 to her tax person to file with her return? No, only one Estate 1041 can be filed. Both of you can't do it. She can't just make one up (K-1). She/he would have to do the entire return.

2. It would matter only if the deceased was not still living in the house at her death since it was sold after she died. Estate Tax Exemption was $3.5 Million last year, so probably no 706 required.

3. Don't forget to include any admin expenses on the return like probate fees, executor's fees, your fees for the 1041, fees for final 1040 prep, accounting and/or filing fees.