1041 help needed

[TAX4US]

TP decease 2012. Estate consisted of house only. Exec paid all bills of the estate including re taxes, ins, water, bills etc to prepare this house for sale. In 2017 Estate sold the house, paid back the Exec for every thing she paid for then distributed the remainder to the heirs. In the accounting provided the commissioner of accounts who accepted it and signed it as now closed allowed all the payback (very detailed with checks and receipts). The 1099 for the sale was issued in the estate name and FED #.

since IRS will be looking for this income in the estate # 1: show this sale on a 1041 and the distributions accordingly? #2 Since all the bills were deemed paid by the estate at closing can they be used in the filing the 1041 return?

No 1041 forms ever filed.

The will directed that the real estate be sold to effect a cash distribution to the heirs.

Suggestions on how to proceed.

[taxea]

Follow the 1041 instructions

[ATSMAN]

Who was living in that house from 2012 to 2017? Any of the beneficiaries? Was the house boarded up for repairs?

I think the answer depends!

[TAX4US]

House sat empty because it was in need of some major repairs just to sell the thing is my understanding. They still had to pay RE taxes and insurance along the way.

[ATSMAN]

If this was my client I would have capitalized all carrying costs and used that to figure net gain/loss.

If the executor paid the money from her own funds because estate did not have any liquid assets to pay the bills of the estate then basically she gave the estate an interest free loan and the estate can reimburse her outlay plus a reasonable fee.

[JudyL]

If this was my client I would have capitalized all carrying costs and used that to figure net gain/loss.

If the executor paid the money from her own funds because estate did not have any liquid assets to pay the bills of the estate then basically she gave the estate an interest free loan and the estate can reimburse her outlay plus a reasonable fee.

I agree and had already suggested this as a possibility on another forum where the same question was posted. No returns were filed because there was no income, and I believe that it is still possible to make this sec 266 election filing an original (late) return(s) with the election(s). I took a quick look and I don't see any requirement that the election must be made by the original due date plus extension.

[Burke]

If there was no income to report, then no tax return was due until the year the house was sold. All expenses would be deducted on that return, including any executor's fee (which would be taxable to exec.) I am assuming that all other assets, if any, would have been in joint names so the executor was unable to access them. A prime reason not to do this. Many people think this makes things easier. It does not! I am also assuming that the exec was one of the bene's.

[ATSMAN]

If there was no income to report, then no tax return was due until the year the house was sold. All expenses would be deducted on that return, including any executor's fee (which would be taxable to exec.) I am assuming that all other assets, if any, would have been in joint names so the executor was unable to access them. A prime reason not to do this. Many people think this makes things easier. It does not! I am also assuming that the exec was one of the bene's.

I am not an attorney, but I clearly recall estate planners telling their clients to put property in joint names, for debtor protection etc. In my state senior citizens who go to a nursing home and claim MassHealth (state medicaid) may lose the home if it is in one name only!

[Toobusy]

TP decease 2012. Estate consisted of house only. Exec paid all bills of the estate including re taxes, ins, water, bills etc to prepare this house for sale. In 2017 Estate sold the house, paid back the Exec for every thing she paid for then distributed the remainder to the heirs. In the accounting provided the commissioner of accounts who accepted it and signed it as now closed allowed all the payback (very detailed with checks and receipts). The 1099 for the sale was issued in the estate name and FED #.

since IRS will be looking for this income in the estate # 1: show this sale on a 1041 and the distributions accordingly? #2 Since all the bills were deemed paid by the estate at closing can they be used in the filing the 1041 return?

No 1041 forms ever filed.

The will directed that the real estate be sold to effect a cash distribution to the heirs.

Suggestions on how to proceed.

I have a similar situation. I asked IRS Rep, at 2017 Tax Forum how to proceed with it. I was told to wait until the Estate had sold and distributions made, and then file Form 1041. I also, was told that if the sale was over 2 years after the decedent's death that the basic for the Real Estate will be the FMV at the time of Sale.

[TAX4US]

FMV at time of sale? Where would this be? I did not think basis would change once established unless some event happened. Can you clarify please. In this case when TP died the EX had a certified appraisal done to file with the inventory of the estate.

[Burke]

since IRS will be looking for this income in the estate # 1: show this sale on a 1041 and the distributions accordingly? #2 Since all the bills were deemed paid by the estate at closing can they be used in the filing the 1041 return?

#1. Yes. Use Schedule D (1041). Cap gain or loss is calculated using difference between FMV at death plus expense of sale, and Sale Price realized.

#2. Perhaps. You need to review the HUD-1. Some of them would be deductible as expenses; i.e, real estate taxes, mortgage interest, executor's fees, accounting filing expenses, probate fees, legal fees, and so forth. Any expense which would be a normal administrative expense of handling the estate. (These may be shown as a lump sum reimbursed to the executor on the HUD-1.) In that case, you need to refer to the accounting to determine which would be an administrative expense and which would be a normal cost of maintaining the property. Admin expenses are deducted on page 1 of the 1041.
Other expenses would be capitalized to the basis of the property and used to determine cap gain or loss, such as insurance, repairs, expenses incident to the sale, like termite insp, transfer taxes, deed prep fees, etc. etc. Since this would be a first and final return, all administrative expenses which are deductible can pass through to the heirs to whom the proceeds were distributed for possible deduction on their Sche A.

[Burke]

I am not an attorney, but I clearly recall estate planners telling their clients to put property in joint names, for debtor protection etc. In my state senior citizens who go to a nursing home and claim MassHealth (state medicaid) may lose the home if it is in one name only!

I was not referring to the real estate, but to other cash assets. Apparently there were either none, or in joint names so the executor had nothing to access to pay expenses. An estate or elder care attorney can discuss ways to protect the real estate asset from being taken by Medicaid.