Estate Return?

[Jake]

Hi,

I have a client that died in February 2006. Prior to his death he owned a home and had about $200,000 in stocks, mutual funds, and annuities. The home and the annuities were transferred over to his adult children and any applicable taxes have been paid. Some of the stocks and mutual funds were sold directly out of the decedent's account soon after his death. In addition he had a little bit of dividend and interest income after his death. Typically in a situation were the taxpayer has a small estate that is distributed within a few months of his death, I will report all of the "loose end" income on his final return. My question is - How do I handle the sale of the appreciated stocks and mutual funds that have been reported under the decedents social security number. An estate return? Assignment of income to the heirs? Any other ideas? Any help will be appreciated.

Thanks

[OldJack]

Regardless of the value of a person's estate at time of death there is an "estate" that must file a federal income tax return on form 1041 if the estate has gross income of $600 or more. If the estate did not distribute the shares of stock and instead sold the shares of stock distributing the cash, then the estate must report the sale on form 1041. The estate should use the fair-market-value of the stock for cost basis (stepped up) as of the date of death to determine gain or loss for the 1041 Sch-D. Income earned and recognized after the date of death are not loose ends and must be reported on form 1041 rather than 1040. The tax year of the deceased ended on the date of death for form 1040. It is a common practice that income reported (in error) for the entire year under the social security of the deceased must be prorated for 1040 and 1041 based upon the date of death.

[Jake]

Thanks Jack. I will file the 1041.

Thanks