Inherited house loss?

[Possi]

I don't do estate returns. Ok. I said it.

My client inherited her mother's house. In the will, she said that the house would be sold and pay a few people a specific amount of money... like, Uncle Jim gets $1000.00 and cousin Cindy gets $1000.00.

My client inherited the house in '08 when Momma died, and it was worth $230k.

She just sold it for $160k.

I was all set to take the loss on Sch D when I realized that the sale of property went to the "estate." Then, she wrote checks to everyone.

The house is the only thing in the "estate."

What happens with that? Will she have to do an estate tax return? Or can I take the sale on her personal return and be done with it?

[BP.]

My client inherited the house in '08 when Momma died

How has the house been used in the years since 2008? Client lived in it as main residence? Her second home? Vacant? A rental?

[Possi]

Vacant

It was vacant... until SQUATTERS moved in!!!

It really was an awful situation. My client is in her mid-50's and has a rare form of cancer. She was too sick to clean it out, so it was vacant all these years. She always paid the taxes on it and maintained the yard, etc. as if she had inherited it, because she had. But it was always vacant.

I just knew she could take the loss... now, it's not so easy.

[Burke]

Your client could not have "inherited" the house if that was the only asset in the estate and the will directed it to be sold to make bequests. The house was an estate asset, it was sold, the bequests made (I guess) and she took what was left if she was the only beneficiary. Hopefully that is the case. So the loss passes through to her, even if it is 5 years later. Why wasn't it sold in 2008? Because of the market downturn? In any event, the same result will be achieved if the loss is calculated and put on her tax return. (The monies paid to Uncle Jim and Cousin Cindy are not factored into the loss.) I assume you have a copy of the will.

[Possi]

cancer

My client has been battling a very bad cancer ever since her mother died. She hasn't been physically able to go to NY (from VA) and take care of cleaning it out and selling it. The cancer financially broke her, disabled her.... very, very sad. So, when she got wind that squatters had moved in and threw all of her mother's things out, just took over the house, she HAD to move on it. She said that with everything she has had to deal with, it was probably a blessing in disguise that it happened this way.

She had to call the police to get the squatters out of there. It was terrible.

So, will there be a 1041 done, and a K1 issued? I know she is going to ask me if I can do that. The house was sold in 2013.

I do not have a copy of the will. And the last 1041 I did was the ONLY one I did, about 10 years ago for her brother. He had nothing. It was pretty easy to do.

[Burke]

=Possi;163206
So, will there be a 1041 done, and a K1 issued? I know she is going to ask me if I can do that. The house was sold in 2013.

I am assuming she never applied for an EIN for the estate. You could apply for one, and do an estate income tax return and Schedule D (1041), and a K-1, but the outcome will be the same. Whether you choose to do a 1041 or just put it on her return, I would request a copy of the will to determine if it is as she says it is, that she is the executor, and that there are no other beneficiaries. If the check was made payable to the estate, how did she cash it?

[Possi]

estate ID number

Yes, she did get an estate tax ID number. The check was written to the estate.

She is writing checks to the kids from that account.

[Burke]

Then I would definitely file a 1041.

[Possi]

Hold my hand...

Well, I'm sure somebody will hold my hand! LAWD, it's been a decade...

Thanks for enlightening me.

Since I know it will be a loss, and you say the loss will flow through on the K1, it is safe for me to file an extension for them. Whew.

[Lion]

Yes, extensions for estate and extensions for taxpayer.

[Burke]

Well, I'm sure somebody will hold my hand! LAWD, it's been a decade.

Just make sure you have some documentation for the FMV in 2008 to prove the amt of the loss. And get the HUD-1 for expenses, pro-rated taxes, etc. etc.

[Possi]

Letter documentation

As soon as Momma died, I had a Market Analysis letter written to me, for her file. I knew this would be coming.

It's taking me forever just to get the flamin' extension filed.