Decedent Estate - 1041

[mcbreck]

You never answered why the estate couldn't pay the capital gains tax in the final year and the process of the administrator isn't relevant as we don't know all the details. I don't see a reason to disparage their job since there are very logical reasons not to close out an estate. What if one of the minor children was living in the house until they reached a specified age? What if they were waiting for the settlement of a lawsuit or insurance settlement?

[BulldogTom]

51 minutes ago, mcbreck said:

You never answered why the estate couldn't pay the capital gains tax in the final year and the process of the administrator isn't relevant as we don't know all the details. I don't see a reason to disparage their job since there are very logical reasons not to close out an estate. What if one of the minor children was living in the house until they reached a specified age? What if they were waiting for the settlement of a lawsuit or insurance settlement?

I believe they could, but I think what the others are saying is it would most likely not be the best tax move because of the tax rates the estate would pay in addition to the NIIT.   We may not have all the info to make that judgement, but I tend to agree that with what we have to work with, passing the income to the beneficiaries seems like it will produce a lower tax to them.

Tom
Longview, TX

[mcbreck]

3 hours ago, BulldogTom said:

I believe they could, but I think what the others are saying is it would most likely not be the best tax move because of the tax rates the estate would pay in addition to the NIIT.   We may not have all the info to make that judgement, but I tend to agree that with what we have to work with, passing the income to the beneficiaries seems like it will produce a lower tax to them.

Tom
Longview, TX

The question from the OP was whether it could be done, not whether it generates the lowest tax bill. Two people said it couldn't be done which is false.

[Sara EA]

mcbreck, I said if this was the estate's only asset and has been sold, the money should be distributed.  You are bringing up other scenarios of other assets out there somewhere.  The two year rule is the IRS's, not mine.  It's easy to explain that it took that much time to fix up the house or empty it out or whatever.  I don't know how one would explain that the proceeds just sat around in the estate when all it's other business was finished because the executor didn't get around to writing the checks.

[mcbreck]

On 3/5/2022 at 8:11 PM, Sara EA said:

If the estate sold the home and distributed the proceeds in the same fiscal year, it cannot pay the taxes because it distributed all its taxable income and has none.

Where did you clarify if it was the only assets? And it's still completely false because even if it is the only asset, it still can pay the tax.

[Lee B]

This thread is kinda amusing in a weird sort of way.

[Abby Normal]

In a final return, all income tax liability, even on capital gains, rests with the beneficiaries of the estate. The final Schedules K-1 will carry out all the income.

Source: https://www.journalofaccountancy.com/issues/2012/may/estate-planning-20125011.html

It's a good article. I never thought about choosing accrual method for an estate, but it would have come in handy a few times.

[ILLMAS]

I have a similar case this week, parent died in Feb and the house was sold in Apr of the same year, house was sold at FMV and proceeds  have not been distributed to the beneficiaries, how does one report this sale? 

Thanks 

[jklcpa]

1 hour ago, ILLMAS said:

I have a similar case this week, parent died in Feb and the house was sold in Apr of the same year, house was sold at FMV and proceeds  have not been distributed to the beneficiaries, how does one report this sale? 

Thanks 

With a sale so close to death, the FMV at sale and death would be virtually the same, and factoring in closing cost, there is most likely a loss on the sale.

Does the estate have any other assets or reason to stay open for more than a year?

[Abby Normal]

3 hours ago, ILLMAS said:

I have a similar case this week, parent died in Feb and the house was sold in Apr of the same year, house was sold at FMV and proceeds  have not been distributed to the beneficiaries, how does one report this sale? 

Thanks 

If the initial return is not also the final return, the cap loss will stay in the estate until the final return. If there's no income being earned in the estate, I'd mark the return final, let the estate pay you and the attorneys, etc. then distribute the cash now.

[ILLMAS]

On 3/10/2022 at 11:33 AM, jklcpa said:

With a sale so close to death, the FMV at sale and death would be virtually the same, and factoring in closing cost, there is most likely a loss on the sale.

Does the estate have any other assets or reason to stay open for more than a year?

I believe that is it, the proceeds are in the bank account (as of today) and they just received two forms a 1099INT $20, 1099R $3000 f/w $300 were issued under the FEIN of the estate.  I consulted with a colleague and him mentioned it's probably best to report the 1099R under the parents name to claim a refund, since there is no distributions in 2021 and to file the 1041 for 2022 when they distribute the money.  Right now under the 1041, they would owe a small amount.

Thanks

[Abby Normal]

If the 1099R is in the name of the estate, you must report on the estate. If you try to report it directly on the 1040, you'll never get that $300 of tax withheld back. I usually just let the estate get the refund, for simplicity.

If you choose a fiscal year and mark it final, all the income will pass out to the bene's. It doesn't matter that the distributions were not made yet.

And there probably won't be enough income between 1/31/22 and now to even have to file a 1041 next year. Just make sure the source of the 1099R is switched to bene's ASAP so no more distributions are made to the estate.

[ILLMAS]

26 minutes ago, Abby Normal said:

If the 1099R is in the name of the estate, you must report on the estate. If you try to report it directly on the 1040, you'll never get that $300 of tax withheld back. I usually just let the estate get the refund, for simplicity.

If you choose a fiscal year and mark it final, all the income will pass out to the bene's. It doesn't matter that the distributions were not made yet.

And there probably won't be enough income between 1/31/22 and now to even have to file a 1041 next year. Just make sure the source of the 1099R is switched to bene's ASAP so no more distributions are made to the estate.

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