Another 1041 Situation

[dmj4]

After decedents death an appraisal was done on all properties. There were three rental properties and the personal residence. When I filed the first/prior 1041, I put the rental properties on depreciation and claimed income and expenses on Sch E of the 1041.

Now it is time to file again. The estate has not closed.

One of the rental properties (a commercial building) was rented during this tax year prior to being sold at less than the appraisal. In all, three properties were sold. Two of them sold at a loss. The return would have zero tax liability if the loss from the sales is taken against the rental income for the commercial building.

The problem is that the attorney sold the properties in the names of the beneficiaries and a 1099S was issued to each of them.

The seller is listed as:
1st contract- for the commercial building, lists only the beneficiaries as sellers.

2nd contract- seller lists the beneficiaries and with the words “Heirs of XXX XXXX” then lists the names of all the beneficiaries.

3rd contract- lists the names of the beneficiaries and the words “being all the heirs at law of XXX XXXX”.

Would you be concerned about showing the sales on the 1041, with the loss from the sales against the income from the rental? In my opinion they belong on the 1041, but the 1099S’s issued to the beneficiaries concerns me.

Thanks!

[Edsel]

Estate Gains and Losses

Donna, if the property was not in the name of the beneficiaries at the time of the sales, the sales are reportable by the estate.

This is typical of what kind of mopping up we have to do when we go behind attorneys.

Discuss with the estate administrator what your responsibilities are, and inform him(her) that the 1099-S documents were filled out incorrectly. However, make sure you are right, i.e. the property was in fact in the estate at the time of the sale and had not been deeded to the beneficiaries without anyone knowing.

[dwert]

Another 1041 Situation

A very smart CPA told an Estate and Trust seminar class - Lawyers determine "ownership" and accountants determine "income". Don't practice law! If the lawyer transfered title to the beneficiaries BEFORE sale of property, it is the beneficiaries' sale to record on their 1040. Make sure before you do 1041 - either the estate owned the property or it didn't.

[dmj4]

So....

I check with attorney to determine if the property was deeded to the beneficiaries prior to sale. If not, I report on 1041 and explain to client.

If they were deeded to the beneficiaries, I do not show sale on 1041. Do I only show rental income until the date of the deed transfer? I would also stop the depreciation on the date of transfer, correct? I typed this on a Blackberry,so I apologize if it is not readable.

[Burke]

You are correct. Check to see if the 1099S(s) were submitted to the IRS using the bene's social security numbers. If the property was not transferred to them prior to the sale, you will have to deal with that issue, as the IRS will have the income in the computers under their SSN's and on the K-1 as well. I see this situation all the time and it drives me nuts. I had one this year where the settlement agency put the children benes' names on the HUD1 and paid them the money at closing, instead of the estate. Then the executor told me that since the "house went to the kids" there was not enough money to make the other bequests in the will! (The children had to make arrangements to fund the bequests out of their proceeds since the house was not bequeathed to them in the will.)

[dmj4]

1041 Help! again, please.

The attorney DID transfer the properties to the estate administrators, only 2 of the beneficiaries, the same day as the sale. The transfer was recorded. The property closed (same day) and 1099S forms were issued to all beneficiaries (6 of them).

Now..........it seems I have another problem. On the 2005 1041, I took property maintenance expenses on the properties held for production of income subject to 2%(see below). Two of the properties sold in 2007 were rented in 2005. Because the properties were not sold within the estate, will this return need to be amended and tax paid on that deduction? The properties sold ended up netting a loss against the appraisals. If they had sold within the estate there would have been less estate tax to pay.

TTB, page 21-10, "Expenses for administration of an estate or trust are deductible under IRC Section 212, including trustee and personal representative fees...."

"IRC Section 212 allows deductions for expenses paid:
* For the production or collection of income,
* For the management, conservation, or maintenance of property held for the production of income, or
* In connection with the determination, collection or refund of any tax (income, estate, gift, property, or other tax).

"2% AGI floor. Expenses deducted under IRC Section 212 are generally deductible only to the extent they exceed 2% of AGI. Exception: administrative expenses that would not have been incurred if the property were not held in the estate or trust are not subject to the 2% AGI floor."

[Snaggletooth]

Nothing Changes

I don't see anything that changes for 2005. Unless I'm misreading something, your discovery does not affect 2005. The property was still held for sale in the estate.

Distribution occurred with the transfer of property to the beneficiaries. What you discovered means that the distribution was non-cash, and the issuance of 1099S was
proper.

The owner of the properties must now report the sale, instead of the estate.