Form 1041

[Christian]

A mother died in April 2015. Her estate has been open since then but because there was no income coming in in excess of $600 each year no Form 1041 was filed. Her home left to her two sons equally was finally sold in October 2018. Since no initial Form 1041 has ever been filed what time period needs to be shown for this filing ? The home sale is reported under the estate EIN. Another complicating factor is that the home was transferred to the sons. Ordinarily the sons would report the sale as an inheritance reflecting the sale in their separate returns for 2018. My thinking is since reported under the estate EIN a Form 1041 will have to be filed. Ain't tax work grand ? Is there any wonder I have significantly less head hair than once I did ? 

[Lee B]

I don't do estate returns. Just wondering. does this blow the step up in basis ?

Does an estate get the gain exclusion on the sale of a home ?

 

[SaraEA]

Christian, mark the 1041 both first and final return.  If an estate has been open for more than two years, you have to attach an explanation.  Here's your chance to explain why no prior returns were filed (below filing requirement and real estate took time to sell).

What confuses me is that the estate sold the home but it was transferred to the sons?  They should have sold it, but all the IRS knows is that the estate EIN has income so a 1041 is expected.  It makes no difference since inherited basis is the same for sons and estate.  If repairs/improvements were made, the costs add to the basis of whomever paid them.

cbslee, an estate never gets a Sect 121 exclusion since an estate could not have lived in the house.  Even the sons can't get it if they lived there because they didn't own it for 2 of the last 5 years.  Or did they?

[Christian]

Thanks ever so much Sara. My idea was it would amount to something like this. The attorneys involved somehow screwed up (imagine an attorney messing up}. The house was sold at a loss which will pass through to the heirs.

[Catherine]

5 hours ago, Christian said:

imagine an attorney messing up

If it involves taxes, and the attorney is not a tax attorney (specialist), it's almost a certainty that they WILL mess it up.  And never admit it.

[DANRVAN]

On 2/6/2019 at 4:13 PM, cbslee said:

I don't do estate returns. Just wondering. does this blow the step up in basis ?

Decedents would get the step up in basis under the 1.1014-4 uniformity of basis rules.

Looks like you have two choices, report by estate and k-1 sons, or report on 1041 and back out since the property actually belonged to son at time of sale.