Form 1041 & K-1

[Bird Legs]

Client died 2/4/05. Assets consisted of savings acct. & residence, both of which went into the estate.
The house sold by the estate on 4/5/05 for $83,000.
Assume FMV of house on 2/4/05 was 83,000.
Gain (loss) $ -0-
Interest income 147.
Am preparing the first & final 1041 with exemption of 600.
Taxable income to the estate of $-0-
2 beneficiaries of the estate and the savings & proceeds from sale of house distributed
on 9/5/05. Each beneficiary receives 50% of the estate.
Question: What about the K-1. What is reported on them since the 1041 is
reporting zero taxable income?
Are the K-1's required?
Your help is greatly appreciated. This old mans mind is not working too swiftly these
days.

[Bucky]

Depends

If there were no expenses or excess deductions or capital loss on home sale then I see no need for K-1 forms. It seems a little odd you don't have excess deductions but sounds like even if you did they would be minimal and probably would not help the two beneficiaries.

[Unregistered]

In the final year of a trust/estate return, ALL income and expenses are distributed to the beneficiaries (i.e. the $600 exemption is irrelevant). In short - You need to prepare the K1s.

[JG EA]

Filing requirement

"First and final return". What about the filing requirement of $600. It seems to me a 1041return is not required at all.

[Bird Legs]

JG-Gross Receipts

exceed $600. because the saleof the house totalled $83000. From the way I read the
instructions It is not the net income exceeds $600. but the gross receipts.
I could be wrong in this matter. Have been known to be wrong in the past.
Appreciate your response.

[jimmcg]

It has also been my understanding in the past that filing is reqired if all gross receipts exceed the $ 600 amount. I have met some who disagree but have never seen a resolution to this matter. It will be interesting to see what others think on this matter.

[Jesse]

"First and final return". What about the filing requirement of $600. It seems to me a 1041return is not required at all.

This was my thought as well.

I am not familiar in this area what-so-ever, so many of you may think this a stupid question........ does the estate have to sell the house, or could it be considered sold by the beneficiaries, therefore w/ the sale so close to date of death FMV = Sales price, no gain or loss and no 1041 required?

[abby]

Gross Receipts

I've always been a bit uneasy on the point of whether net gain or gross proceeds on a capital asset were used when calculating filing requirements.

One time when we were looking at whether a child had a filing requirement, it appeared to say that one uses net gain rather than gross proceeds.

I'm one to err on the side of caution, especially when there is a reporting form out there in many cases, like a 1099-S or 1099-B.

Aside from the cost of the preparation (which is a factor certainly) it doesn't hurt 'to declare yourself' and file a return marked first and final.

Our software will put NO REPORTABLE INCOME on the K-1, and it will also reflect the Distribution of the Estate proceeds - which is the amount that flows from Line 10 on pg 2 of the 1041 OTHER DISTRIBUTIONS.

As to how to factor in the sale of a capital asset in deciding if a return is necessary - I'd be most appreciative if anyone can point to something definitive.

[S T]

1041 Gross Income

The form 1041 instructions state that a return is required to be filed if the Estate has "gross income" of $600 or more, Trusts must file if there is any "taxable income" , "gross income" of $600 or more (regardless of taxable income). These instructions are also in TB, page 21-2.

So for Bird's example, wouldn't the gross income be the $83,000 sale of the property.

Sandy

[Bird Legs]

Sandy

you are interpreting this the same way I am.
Another question, If there is a loss on the sale of the house, after deducting selling expenses, would this loss be deductible by the beneficiaries? Final year, pass through on K-1.
Also, would the real estate taxes deducted from sales proceeds, $900., be deductible?
On page 1 of the 1041? Expenses - Taxes?
Thanks for your help.

[abby]

The form 1041 instructions state that a return is required to be filed if the Estate has "gross income" of $600 or more, Trusts must file if there is any "taxable income" , "gross income" of $600 or more (regardless of taxable income). These instructions are also in TB, page 21-2.

So for Bird's example, wouldn't the gross income be the $83,000 sale of the property.

Sandy

That's what is unlcear to me. Income is income, even if you have expenses to offset it before calculating tax liability, but are Proceeds from the Sale of an asset Income? Or is it the capital gain that is income? Only the gain or loss is reported on the 1040, etc so isn't that the gross income? Only the gain goes into Total Income and AGI.

Like I said, I think I'd file, too, in this case, but I don't think there is $600.00 of Gross Income. I would be happy to be proven wrong or right, if I could see some language that was clearer than what I find in the publications.

[S T]

Gross Income Defined

Abby, good point, so I went to Google. I found this IRC Section 61

(a) General definition
Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, including (but not limited
to) the following items:
(1) Compensation for services, including fees, commissions,
fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.

So gross income for capital assets would be the "Gain" derived from dealings in property, not the actual sales amount.

Like you stated I also err on the side of caution if there is a reporting form such as a 1099B or 1099S, and file a return.

In Birds example, no reporting really necessary if we use the above defiinition as there is not $600 of gross income, however, he will have either capital loss or excess deductions on termination of the estate that can be reported on the beneficiaries K-1 forms.

Sandy

[Bird Legs]

S T

Once again, a great big THANK YOU.

[abby]

and thank you, too

Thanks, Sandy - it's great to put that one to bed and stop worrying it to death - you've given me what I wanted to prove what I believed to be true - just great!

[RLymanC]

1041

I had the same problem.....no income to report on the 1041.

The fact that the estate had a tax ID number the IRS sent a request for form 1041, so I put all zero's and mailed. No further contact from IRS