Discussion:1041 estate administration costs and deductions

It is a decedants estate. There is no 706 being filed. the 1041 will be first and final return, there was about 2k in interest income and 2k in misc (debt cancelation) income. A house was sold and appropriate cap loss is being realized and carried over to benes via k1.

My question is if any of these costs are deductable and if so where on the 1041 should they be entered.

1. probate and court fee 2. utilities for the house that sold. 3. mortgage interest paid prior to house sale. 4. home owner association fees.

should any of these costs go on 15a or 15b. or should they be rolled into fidiciary fees (line 12)?

any help is much appreciated

2) There is also considerable debate as to whether you can claim the mortgage interest. After all, an estate doesn't need to have a residence. If anything, it may be investment interest. It may also be an expense of the beneficiaries paid by the estate, in which case it is a distribution to them. Ties in with #1, see SCA 198-012. If personal use by the benes, then maybe 2nd home mortgage interest to them.

3) Other costs of administering the estate can be deducted - some are subject to the 2% limit, and some are not. In general, the ones that only came about because there is an estate (the probate court fees) are not subject to 2%, and the ones that anyone could have are subject to 2%. They are not fiduciary fees, that line is really for what is paid to the fiduciary. As for the costs of maintaining the house - again it will depend on SCA 198-012 and your state law whether these are expenses of the benes or expenses of the estate.

4) You might want to take a class on this - I happen to teach such a class. See my page for more details Kevinh5.

Then there are the real estate taxes - I have taken those as deductions on a 1041. Don't know if that is right but I've never had it questioned - but then Estate 1041's are rarely audited. Mortgage interest - I've never had an estate where the house was mortgaged except when there was a surviving spouse who was either jtwros or at least a tenant in common who name is also ont he mortgage and note. In those situations the house gets transferred to the spouse, the loan and all of the interest is on the surviving spouse. In Ohio they allow expenses of maintaining a house held for sale as deductions on the Estate Tax return but I do not htink they would be expenses for a 1041. Just my opinon - estate 1041's are difficult.

The executor wants to treat this as a "gift" from the other beneficiaries, as opposed to a distribution from the estate, so the remaining beneficiaries would share this $ proportionally as a distribution to them (I understand that this will be attributable to the recipient as well in order to keep the distributions proportionally equal). The estate will have about $515k in taxable income for the fiscal year. The payee of this $50k is a 10% beneficiary, and has already received $40k for the year in distributions, and will receive more before the end of the fiscal year.

So I don't see that this would have any impact on her taxable income from the estate, as that will be covered by regular distributions to her outside of this special payment. But I'm wondering if this payment could be considered an administrative expense and deducted. I'm guessing not, but just thought I'd throw it out there to anyone who has some experience in this. My goal is to try to reduce taxable income to the beneficiaries as much as possible, within the law, of course! Thanks.