1041 trust return question

[arlo]

Client has his dead fathers trust. The trust includes the house his father lived in. His sister lived in the house until she died. The house was also used by my clients daughter in 2014 while going to college. She paid not rent. Client wants to deduct the Property Tax on the trust return. The deduction was not taken on the trust return in previous years. So I never took the deduction. The house does not provide income. Can taxes and insurance be taken on the trust return without producing income?

[Burke]

Yes, if is owned by the trust. It is considered maintenance of trust property until it is distributed or sold. And that includes utilities, etc. as well. If his sister lived in the house until she died, and your client's daughter also lived there, where was the father? If this was a revocable living trust, then you would not have taken the property tax deduction while he was living, as it would have been deductible to the father on his tax return.

[arlo]

1041 trust return question

When the Father died a SIMPLE TRUST was formed. Taxpayer was a son and trustee of trust. The sister is taxpayer sister daughter of the Father. The daughter (student) was taxpayer daughter. Thanks for the reply. Just wanted to make sure the deductions could be taken.

[Burke]

Well, normally this would be the case. Why is the house in the trust? Is it a personal residence for any beneficiary or related party? Is it to be sold? Because you cannot just put property in a trust just to deduct certain expenses that would not otherwise be deductible. (You said it was not income-producing.) You didn't say, but I am getting the impression that the father may have died some time ago. You said you had not taken the taxes and insurance on the trust returns previously. I am also assuming that since you are completing a trust return, it has gross income over $600 in this year and in prior years?

[arlo]

1041 question

The taxpayer said the house is in the name of the trust. I took this return over from another preparer. The former preparer did not deduct the property taxes from trust income in prior years. The house was used by the daughter of the trust until she died. The house is not being used for personal use by any family member until 2014 when the taxpayer daughter lived in it while going to school. The trust (SIMPLE) is in the name of the father of the taxpayer.
I am not a trust expert and I am just following what has been done in the past.

[Burke]

If you are going to do the trust return, get a copy of the trust document. And I would be cautious about deducting anything in this situation other than the property taxes, and only if they were actually paid out of the trust funds. I would be curious to know who was deducting those taxes in the past, if they were not on the trust return. It sounds like the house is going to remain in the trust, but not as rental property.