I have been reading quite a bit of this board before I joined. I am so impressed with the tax knowledge shared on the board. I have a questions about the form 1041 and k-1s.
I am new to 1041s and will be doing one for my friend. It doesn't seem too hard to do or I wouldn't attempt it. Let me give you an overview of my dilemma and will ask my questions at the end.
Mother died 3/5/2005. Property appraised in 5/2005 at $93,000. Left her residence to 11 heirs of which my friend is one. No one has lived in the residence. Heirs sold the property in 2006 to another of the heirs for $75,000. On its face-we have a loss. However, I do know about the rules governing a sale to a relative and the loss is not allowable. There are some expenses that are not subject to the 2% limit though. These expenses total about $8900, which each heir would have as a loss of $809.
Questions for the 1041:
(1) Since there is an unallowable loss--shouldn't I still show it with an explanation of the sale was to one of the heirs on Schedule D? I will probably have to prepare the return by hand since my software isn't asking me if the sale was to a relative and wants to show the loss. BTW, the attorney issued no 1099s.
(2) I will still have to prepare k-1s for each of the receipients-correct?
(3) The $93,000 appraisal was a year and a half ago so there could have been some deterioration to the property. I do know that quite a bit of fixup needs to be done to make it more liveable (ac, etc.) Is it possible I could show the cost basis and the sale price as the same allowing the D to show a loss only for expenses of sale that flow through to the k1s?
(4) What would be my tax year be since the house was just sold in October 2006? An EIN was just obtained last year in August, I believe. I suppose I would use a fiscal year and mark return initial and final-correct? I hope most of this is clear.
All you learned preparers, please help me to be the best I can be. Had I known I would be faced with this situation last year, I would have taken Estates and Trusts instead of Partnerships and Corporations ;-)).
Thanks
Peachie
I am new to 1041s and will be doing one for my friend. It doesn't seem too hard to do or I wouldn't attempt it. Let me give you an overview of my dilemma and will ask my questions at the end.
Mother died 3/5/2005. Property appraised in 5/2005 at $93,000. Left her residence to 11 heirs of which my friend is one. No one has lived in the residence. Heirs sold the property in 2006 to another of the heirs for $75,000. On its face-we have a loss. However, I do know about the rules governing a sale to a relative and the loss is not allowable. There are some expenses that are not subject to the 2% limit though. These expenses total about $8900, which each heir would have as a loss of $809.
Questions for the 1041:
(1) Since there is an unallowable loss--shouldn't I still show it with an explanation of the sale was to one of the heirs on Schedule D? I will probably have to prepare the return by hand since my software isn't asking me if the sale was to a relative and wants to show the loss. BTW, the attorney issued no 1099s.
(2) I will still have to prepare k-1s for each of the receipients-correct?
(3) The $93,000 appraisal was a year and a half ago so there could have been some deterioration to the property. I do know that quite a bit of fixup needs to be done to make it more liveable (ac, etc.) Is it possible I could show the cost basis and the sale price as the same allowing the D to show a loss only for expenses of sale that flow through to the k1s?
(4) What would be my tax year be since the house was just sold in October 2006? An EIN was just obtained last year in August, I believe. I suppose I would use a fiscal year and mark return initial and final-correct? I hope most of this is clear.
All you learned preparers, please help me to be the best I can be. Had I known I would be faced with this situation last year, I would have taken Estates and Trusts instead of Partnerships and Corporations ;-)).
Thanks
Peachie
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