1041 has positive rental income of $500. There are mortgage interest, real estate taxes, and investment expenses. Obviously, none of these are needed to offset the income as there is a $600 estate exemption. As such none of these will carry forward to 2016, correct?. However if we elect to forego mortgage interest treatment the interest will become investment interest and will carry forward. I assume when the property is probated and the beneficiaries get it they will have to get a new mortgage, so they will not be constrained by this election and their mortgage will be home acquisition. Do you agree?