Estate Income Tax Return - Expenses

[peggysioux5]

Taxpayer is executor of mother's estate. Mother passed away in 2015 and only asset was residence which had to be repaired prior to sale. Estate was cash poor so executor paid for expenses from 2015 to 2018 when home was sold. Taxpayer did not file any estate income tax returns from 2015 through 2017 thus no election to capitalize expenses. Probate did not begin until 2018 and executor was reimbursed for a portion of his expenses in 2018 through probate. If expenses from 2015 through 2017 were reimbursed in 2018, would those expenses be deductible in 2018 on 1041 estate income tax return or being expenditures took place in previous years and no income in those years, would those deductions be lost? (I think it would be the second choice, but hoping there is some exception being there were almost $15,000 in expenses that will be lost). Unable to make 2018 tax return final (attorney advising me that probate will take another four months)

[SaraEA]

It sounds like these might be capital expenses.  If the estate sold the home, it will add them to basis, thereby decreasing the cap gain or increasing the cap loss passed through to the beneficiaries.  The expenses are not lost.

[peggysioux5]

The expenses in question are utility costs, upkeep of landscaping, and administrative fees, not repairs or improvements to the home.  (I should have provided this information in the original post.)  If the estate reimbursed executor in 2018 for 2015 through 2017 expenses, would the expenses be deductible in 2018?  Thank you in advance for your input.

 

Peggy Sioux

[SaraEA]

The estate paid the expenses in 2018 so will deduct them in 2018.  (Just like if you didn't pay the house taxes for two years and then paid them all at once, you would deduct them in the year paid, not the year incurred.)  Taxes and legal fees and the like are deducted from estate income.  Things like maintenance and utilities are also deducted from income, subject to the 2% AGI limitation (yes, estates still get that as far as I know).  If the estate had no income, the whole thing is moot.  When the estate closes it passes on "excess deductions on termination" (expenses it couldn't take because it had no income) to the beneficiaries, who can no longer use them on their Sch A misc deductions.