1041 deductions for production of income

[Unregistered]

On a 1041 return can the utilities for the primary residence which will be sold while in the estate, be deducted? Are they subject to 2%?

Can repairs to that residence be deducted? Are they subject to the 2%?

The residence has not sold, yet.

[OldJack]

Generally you can think of a 1041 as a substitute for the 1040 of the deceased. If you couldn't deduct it on a 1040 you are probably not going to be able to deduct it on the 1041. There are exceptions of course, but I don't believe what you ask would fall into any exception. Some expenses you mention may be able to be capitalized as cost of the property, but as the residence is stepped-up to fair-market-value and/or excluded under §121, it may not be a factor in the end.

[Kram BergGold]

Disagree

On a 1041 the electricity would definately be deductible if the house is being held for sale.
To me this would be a 2% item because it would be so on a 1040 as well. So maybe capitalizing is the way to go.

[Unregistered]

It is being held for sale

The house is being held for sale.

[OldJack]

confused ????

On a 1041 the electricity would definately be deductible if the house is being held for sale.
To me this would be a 2% item because it would be so on a 1040 as well. So maybe capitalizing is the way to go.

Well... you have me confused. You say utilities on my residence (that I have listed for sale) would be deductible on the 1040 subject to 2% which make me think Sch-A misc. You must not be talking about property that is held for rent as there is no 2% there, so how do you get a utilities deduction on Sch-A?

[♠♠♠♠]

You could have the utilities turn off, but if your leaving them on in order to sell the property, then I would classify them as selling expense and deduct them from the sale price of the house.

[OldJack]

I agree with ♠♠♠♠ that they could be capitalized as selling expense deductible as adjustment of the amount realized on sale only in the year the property is sold. However, at one time there was a time window that the selling expenses had to be in and I don't recall if that is still true.

[Roland Slugg]

Administration expenses

From the original question in this thread:

On a 1041 return can the utilities for the primary residence which will be sold while in the estate, be deducted? Are they subject to 2%?

Yes, in my opinion they can, and no, they are not subject to the 2% floor.

As soon as its last occupant dies a house ceases to be a personal residence and becomes either rental property or investment property. Which type is usually apparent. Ordinary, ongoing expenses such as utilities, gardening, etc. are deductible on F-1041, line 15a. Line 15a is the equivalent of line 20 on a partnership return, or line 27 on Schedule C (F-1040). These are expenses paid or incurred in connection with the administration of the estate that would not have been incurred if the property were not held in the estate.

Can repairs to that residence be deducted? Are they subject to the 2%?

Repairs need to be decided on an item-by-item basis. For minor repairs of an ongoing nature or to fix things that break after the decedent's death, I would deduct them similar to utilities, etc. However, repairs to correct deferred maintenance or problems pre-existing the DOD should be capitalized, and I believe this would be allowed under Regs §1.266-1.

[OldJack]

Roland makes sense. The property receives a step-up in basis and then becomes investment property (capitalize expenses) or rental property (deduct expenses) or held for sale (capitalized selling expenses) depending upon how the property is classified by the trustee. However, I really think there is a question on deducting expenses as administrative. I really don't know. I guess it was the 2% that thru me into thinking 1040 Sch-A.

[theresa d]

deductible subject to 2%

I have handle several estates and the research i did lead me to the conclusion that the expenses are deductible but subject to the 2% floor. administrative expenses are not subject to the 2% limitation if they would not have been incurred if property were not held bythe estate-ie legal, accounting fes for 1041 preparation. If there was no estate there would be no legal or accounting expenses.

Expenses that would have been incurred in the absence of an estate are subject to the 2% limitation if incurred by the estate. Expenses for maintaining estate investment property would fall into this category. For anyone to maintain the property utilities and other maintenance expenses would be incurred- the fact that it is held by an estate would make these expenses deductible but subject to the 2% floor. A fine line distinction.

Ii know this is a little confusing and I originally thought such expenses would be 100% deductible as the estate would not incur the expense if it did not hold the house. I feel however the key in determining the 2% floor is not what the expense is but would it have been incurred in the absence of an estate. Maintenance of a home,regardless of the owner, would include utilites etc- therefore subject to the 2%.

The other option is to capitalize.

Hope i explained this clearly enough.

[veritas]

Good post theresa. I get stuck with these things once in awhile and always struggle some.

[Unregistered]

Wouldn't they have to rent it for it to be considered investment property thus allowing the deduction for maintenance costs?

[Bees Knees]

Not to change the subject, but I want to know if ♠♠♠♠ is related at all to Prince, the artist formerly known as a symbol?