Discussion:1041 filing with no income only deductions

From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> 1041 filing with no income only deductions
Discussion Forum Index --> Tax Questions --> 1041 filing with no income only deductions

Lhhesscpa (talk|edits) said:

18 May 2008
Another posting to my My Talk while I was concentrating on tax season. -- Larry Hess, CPA | Albuquerque, NM | Talk to me

    I am preparing a 1041 estate return. In seeking tax help for this filing, I've been so confused reading the filing instructions, and the conflicting answers from the IRS and a local CPA acquaintance. Other than the sale of the home, there is no other income. 2 sisters will split the proceeds from the sale of their mom's home. Their mom was living in a facility for a few months. She was retired and worked for the state and received annual annuity payments in lump sum which she received before her death. A return for this has already been filed as her last return. The sisters had to pay off the 2nd mortgage with approx. 13k of the $110,000 of proceeds they received from the sale of the home. I have completed the 1041 Schedule D and show a zero gain. There is no other income. The house was sold 3 months after the death of their mother and the basis is basically what they sold it for. Since there is no income on this return can I enter the applicable deductions and wind up with a loss on this return or do I have to wait until next year [final year, 2008 they are waiting for creditors to settle bills] to file the losses? I was told by a local CPA that K-l's should not be filed until the final return, is this correct? Can the $13k paid for the 2nd mortgage be split as an final year deduction on the k-1? There are several deductions; from probate fees, admin fees including traveling, storage, expenses incurred fixing up the house to sell including cleaning up the yard. Thank you for any assistance you can provide! I LOVE THIS FORUM!! User:Nancychristi

Lancermc (talk|edits) said:

18 May 2008
Sale of home may qualify for exclusion, hence no Sched D would be enecessary. Expenses that are deductible by individuals are normally deductible by trusts - RE Taxes, business expenses if there is a business, etc. You cannot convert otherwise non deductible expenses to being deductible because they are in a trust. The 13K mortgage is not deductible. Lets say there are deductible expenses that exceed income, those should be passed through to beneficiaries. 1041 instructions are not comprehensible to those who do not understand the fundamentals of trust accounting and taxation. You might want to have someone who does this for a living review it for you. Its only fair to the client.

Dennis (talk|edits) said:

18 May 2008
Unless the home was in contract to sell as at date of death there would be no application of the ยง121 exclusion. In general, sales price is date of death value and there is a Schedule D loss for closing costs. In any event, if you are going to file this return a Schedule D would be necessary. Some of the "fixing up" expenses may qualify as additions to basis. Mortgage interest (not principal) from date of death to date of sale is, absent personal use by a beneficiary, investment interest. Although not specifically provided for in the latest code revision, the carryforward is not denied and should be available for pass through on the estate's eventual final return.

Consider the option of filing a short initial fiscal year to maximize capture of administrative expenses available for pass through.

To join in on this discussion, you must first log in.
Retrieved from "http://www.taxalmanac.org/index.php/Discussion:1041_filing_with_no_income_only_deductions"
Personal tools

Discussion Forums