1041

[MAMalody]

I don't do 1041s, however, I just received one from a client to review as he is a 50% beneficiary of his mom's estate along with his sister. Apparently she had the 1041 prepared and now wants him to accept it and pay 1/2 the preparation costs. Since I don't do these, I plan on telling him I don't do those and he needs to check with somebody who does to determine it's accuracy. I did note that a personal residence was listed on it being sold at a loss. Can you report a loss on a personal residence on a 1041?

[rfassett]

The "estate" does not have a personal residence. The deceased had a personal residence which stopped being a personal residence when she passed. The property got a step-up in basis when she died and the resultant loss in value and/or costs to prepare the property for sale and any holding costs would result in a long term captial loss being reported on the 1041.

[Randall]

Not sure how the preparer of the 1041 came up with the loss. But in my similar case, I have a 1099-S in the name and id of the estate. There were $6000 in improvements to ready the house for sale. I was just going to show sale price and basis equal to process the 1041 as initial and final and clear the 1099-S and EIN. I really don't think I can add the cost of improvements and come up with a $6000 loss to pass thru to beneficiary. There was no appraisal so what would be the FMV at date of death. I was just going to assume the sale price would be the FMV at date of sale and assume the additional $6k was part of that and FMV at date of death would be sale price minus the $6k.

But then, many people say fixing up expenses don't add to the sale price, just help the home sell faster. Is there a reasonable position to use sale price as FMV at date of death and add the $6k to basis?

[rfassett]

In my State, an appraisal of the real estate (as of the date of death) is done for the inheritance tax return. So it is easy to establish the basis. If the date of death and sale date are reasonable close together, in your example, I would take the $6,000 loss. If we were having this conversation when the real estate prices were plummeting, my answer may be different because fair market value would be more difficult to establish. And just to carry your thought process through, your beneficiary is, in fact, receiving $6,000 less of an inheritance because of the monies spent to ready the house for sale. By not taking the loss, you are effectively causing your client to pay tax on the $6,000.

[michaelmars]

even with an appraisal, any sale with in 9 months of dod or before the 706 is filed [with extentions] is considered the fair market value. Improvements are additional costs. Remember its no longer a home, its a piece of investment property that has carrying cost associated with it too.

[cred65]

It the deceased had rental property (3) and the estate continued the rentals for 6 months before selling all properties, is the basis transferred to the estate the same as in the hands of the deceased, or is it adjusted to FMV?

[michaelmars]

ITS adjusted to fmv this is called a 754 election and gets depreciated as a new asset, don't forget some of the step up goes to land which is not depreciated. it the property is sold close to dod then the step up results in some ordinary exp of depreciation but increased the cap gain 15%. in short periods this is almost a loss. the 706 has to use the sales price since it was so close to dod. if the 706 was already filed you must amend it. ATX has the 754 election built into its election form.