Estate income tax return-how to account for money w/h for inheritance tax

[joanmcq]

Ok, have an estate income tax return where the house was sold.  $200,000 (exactly) was put into escrow to pay estate tax.  How do I account for this on the estate income tax return?  Or do I account for it at all?

[joanmcq]

I should have typed '200,000 was put into escrow to pay inheritance tax'

[BulldogTom]

I might be wrong, but here is my thinking:

You have a capital transaction, the sale of an asset (home) for another asset (cash).   Simple balance sheet adjustment from Investment Asset to Current Asset, assuming no gain or loss on the sale.

The Cash in the account still belongs to the estate.   The funds may be restricted for use to pay tax, but they are still the property of the estate until the tax is paid.

If you know the exact amount of the tax due, you have a liability for taxes and a non-deductible expense (for accrual accounting).

I would not overthink this one.   Sale of an asset for cash.

Hope that makes sense.

Tom
Longview, TX

[DANRVAN]

2 hours ago, joanmcq said:

  Or do I account for it at all?

Nothing to report other than the sale of the house.  As Bulldog mentioned, the escrow deposit is basically a balance sheet transaction. 

The escrow deposit is part of the sale proceeds.

[joanmcq]

Thank you!  I don't do very many trusts and haven't done an estate income tax return in probably 10 years.  But I have a bunch of estate & trust returns this year.  My client's parents are dying.

[joanmcq]

I have another question for this return:  the beneficiaries.  I have 6 beneficiaries, 3 people and 3 charities.  One of the people has since passed away too.  Ugh.  I do K1s for all of them?  Just the people?

Also, does a church have an EIN??

[Lion EA]

A church has an EIN to pay its employees, including its clergy.

[Sara EA]

Were the charities actually beneficiaries?  Most often bequests are made to charities, e.g., give $10k to my church.  Any charity of person for that matter that receives a bequest does not get a K-1.  K-1s go to those who share in the income and expenses and remainder of the estate.

[joanmcq]

I'm not sure; the paperwork I received was just the court document that said they did mail the will to the State of NJ Surrogate's Court and named the beneficiaries as the 3 people and 3 charities.

[BulldogTom]

17 hours ago, joanmcq said:

I'm not sure; the paperwork I received was just the court document that said they did mail the will to the State of NJ Surrogate's Court and named the beneficiaries as the 3 people and 3 charities.

You need more info.   Did the K-1 bene die in the taxable year you are working on or after?   If after, need the will to see what happens to their share, if the current year, it belonged to them and you need to issue the K-1 to the person via the trustee/executor of the decedent.

What @Sara EA said.   Are they truly benes or just charitable recipients.   Benes get a K-1, recipients are a deduction.

Tom
Longview, TX

[GLGACCT]

On 3/26/2025 at 5:35 PM, joanmcq said:

Ok, have an estate income tax return where the house was sold.  $200,000 (exactly) was put into escrow to pay estate tax.  How do I account for this on the estate income tax return?  Or do I account for it at all?

I believe you do not account for this on the 1041.  In NJ you account for inheritance tax on the NJ IT-R.  See website https://www.nj.gov/treasury/taxation/inheritance-estate/inheritance.shtml  

As Tom and Sara, suggested, you are missing information.  You will need to see the will and prepare the NJ-ITR to calculate the inheritance tax first, no double dipping. Then move onto the 1041.

The website above has most of the information you require.