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Old 08-26-2015, 05:28 PM
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Form 1041 Question

I am an executor of an estate that took 3 years to be finalized. The primary asset was the home the decedent. The home was sold and the proceeds were distributed to 3 beneficiaries, net of costs. During those 3 years, I paid, out of my pocket, the costs to maintain the home, such as utilities, insurance, etc; I was reimbursed from the proceeds of the sale of the home. I am preparing the final 1041 and was wondering if I can deduct those costs to maintain the home for those 3 years and if so where, as a administrative expenses or increase basis of house. Thanks. Eileen



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Old 08-27-2015, 01:57 PM
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Quote:
Originally Posted by bunny18 View Post
I am an executor of an estate that took 3 years to be finalized. The primary asset was the home the decedent. The home was sold and the proceeds were distributed to 3 beneficiaries, net of costs. During those 3 years, I paid, out of my pocket, the costs to maintain the home, such as utilities, insurance, etc; I was reimbursed from the proceeds of the sale of the home. I am preparing the final 1041 and was wondering if I can deduct those costs to maintain the home for those 3 years and if so where, as a administrative expenses or increase basis of house.
You, as a fiduciary ,must file Form 1041 for a domestic estate (that earns income during the course of any given year) that has gross income for the tax year of $600 or more ; so, the estate's income, like an individual's income, must be reported annually on either a calendar or fiscal year basis. However, you cannot claim admin expenses for both estate tax and income tax purposes; I mean you can take deductions for administrative costs on Form 1041 but can't deduct the same expenses on both Form 1041 and Form 706.
You should not have to pay out of pocket for costs associated with doing it. As you paid out of pocket for the costs, you are entitled to reimbursement for these administrative costs, and the estate can take a corresponding deduction on its tax return on 1041. Your out-of-pocket costs typically involve small expenditures. More significant administrative costs are usually paid directly from estate funds. If you keep track of all extra little costs that the estate doesn't pay for, you are entitled to reimbursement. The estate repays you for these expenses, and the payment or payments qualify as administrative costs, but the expenses must be necessary to settling the estate.




A deduction for administrative costs on the estate's income tax return on 1041, rather than on the basic estate tax return on 706, can result in less income tax due and more money available for disbursement to beneficiaries when the estate closes.

The basis used to figure gain /loss for property the estate receives from the decedent usually is its fair market value at the date of death; FMV of three years ago I guess. Deducting admin expenses on form 1041 does NOT increase basis of the house.


UNLESS you reported your out of pocket little admin expenses on each year’s 1041, So, if the amended return results in a change to income, or a change in distribution of any income or other information provided to a beneficiary, you must file an amended Schedule K-1 of Form 1041 and give a copy to each beneficiary. You need to check the Amended K-1 box at the top of Schedule K-1.
If you have to file an amended Form 1041, you need to use a copy of the form for the appropriate year and check the Amended return box. And also neeed to complete the entire return, correct the appropriate lines with the new information, and refigure the tax liability. On an attached sheet, you should explain the reason for the changes and identify the lines and amounts changed.
However, in my opinion, UNLESS the admin amount is huge, you , as an exe, MAY deduct all of the reimbursed out of pocket admin expenses on the final 1041). Please contact an IRS enrolled agent/a CPA in your local area for more info in detail.



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Old 08-27-2015, 02:07 PM
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You can dedcut out of pocket admin expenses on f1041 line Line 15a—Other Deductions
Not Subject to the 2% Floor



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Old 08-27-2015, 03:14 PM
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Thanks so much for your reply.

You mentioned that I could deduct those administrative costs on the final 1041 if they were not "huge"; what is your definition of huge? The house was sold for approx $800,000, before RE commissions, etc. and the only other asset was a small bank account, which is why I had to pay the administration costs out of my pocket and did not get reimbursed until the house was sold. Those prior year administrative costs were about $6,000 to $7,000, primary insurance on the house. I did deduct the Real Estate taxes in those prior years. Is that amount considered "huge"? There would be not benefit to amend the prior 1041s and K-1s since they had a net loss after I deducted the real estate taxes. Thanks again.



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Old 08-27-2015, 03:54 PM
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Originally Posted by bunny18 View Post
Thanks so much for your reply.

You mentioned that I could deduct those administrative costs on the final 1041 if they were not "huge"; what is your definition of huge? The house was sold for approx $800,000, before RE commissions, etc. and the only other asset was a small bank account, which is why I had to pay the administration costs out of my pocket and did not get reimbursed until the house was sold. Those prior year administrative costs were about $6,000 to $7,000, primary insurance on the house. I did deduct the Real Estate taxes in those prior years. Is that amount considered "huge"? There would be not benefit to amend the prior 1041s and K-1s since they had a net loss after I deducted the real estate taxes. Thanks again.
You mentioned that I could deduct those administrative costs on the final 1041 if they were not "huge"; what is your definition of huge? The house was sold for approx $800,000, before RE commissions, etc. and the only other asset was a small bank account, which is why I had to pay the administration costs out of my pocket and did not get reimbursed until the house was sold. Those prior year administrative costs were about $6,000 to $7,000, primary insurance on the house. I did deduct the Real Estate taxes in those prior years. Is that amount considered "huge"? ========>>>>>>>>>>>Do not take the word SERIOUSLY. what I mean is: ” huge” means a way of my personal expression , a euphemism that is a generally innocuous word / expression chosen to designate roughly appropriate amount level not to be reflagged (?) /noted ,maybe, by IRS; for example, say in general according to tax law, if you are a self employer , then you MUST pay quarterly estimated taxes to IRS/ your state aslongas your tax liability after refundable/nonrefundable credits is $1K or more, however, If your tax liability is not that much( do not also take “that much” seriously I may say “ that much” may mean you do not care much) , then, you May disregard your quarterly estimated tax payments due to low(er) amount of penalties and interest.
So you claimed/deducted those prior year administrative costs on those years’ 1041s, then, I guess you can claim the reimbursement on the final 1041.

There would be not benefit to amend the prior 1041s and K-1s since they had a net loss after I deducted the real estate taxes. ===========>>>>>>>>>regardless of net losses on your prior year 1041s, as said previously, as you can see, amended 1041s are required UNLESS you deducted those prior year admin costs on prior year 1041s.



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Old 08-27-2015, 05:27 PM
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Sorry. misunderstood. NOTE: So you said that you already claimed/deducted those prior year admin costs on those years’ 1041s, then, I guess you can NOT claim the reimbursement on the final 1041 since you already claimed those expenses on prior years’ 1041s. No double deduction is allowed.



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Old 08-27-2015, 07:51 PM
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No, the only expense I did claim on prior year 1041 were real estate taxes, I did NOT claim any other administrative expenses, such as insurance, utilities, etc. I was wondering if even though I did personally pay those expenses when due, in prior years, I did NOT get reimbursed until the final year, when the house was sold. There was no money available from the estate to pay the bills until the house proceeds were received. In effect, I loaned the estate the funds to pay administrative costs. The loan was not paid until the final year. So could it be argued that the year paid was the final year. Just a thought.



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Old 08-27-2015, 09:00 PM
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Originally Posted by bunny18 View Post
No, the only expense I did claim on prior year 1041 were real estate taxes, I did NOT claim any other administrative expenses, such as insurance, utilities, etc. I was wondering if even though I did personally pay those expenses when due, in prior years, I did NOT get reimbursed until the final year, when the house was sold. There was no money available from the estate to pay the bills until the house proceeds were received. In effect, I loaned the estate the funds to pay administrative costs. The loan was not paid until the final year. So could it be argued that the year paid was the final year. Just a thought.
No, the only expense I did claim on prior year 1041 were real estate taxes, I did NOT claim any other administrative expenses, such as insurance, utilities, etc. I was wondering if even though I did personally pay those expenses when due, in prior years, I did NOT get reimbursed until the final year, when the house was sold. ===========>>As an executor that is responsible for 1041(aslongas GROSS INCOME for those tax years were of $600 or more), you had to claim those deductible admin expenses, i.e, ins/ util on the prior years’ 1041s so that the expenses could be passed thru to the beneficiaries’ sch K1s . UNLESS you claimed those admin expenses on 1041s, expesnes were understated while net losses are also understated on Sch k1s of 1041s.Sch K1 s of 1041 provide detailed information about the type of income, deduction or loss so the recipient can accurately report the information on a tax return.As said, you can not claim the reimbursement once you ALREADY claimed the admin expenses on the prior years’ 1041s as double deduction is disallowed.; so, in principle, you need to amend those prior years’ 1041s to claim those omitted admin expenses on 1041s/Sch K1s of the beneficiaries. But actually, as you said, UNLESS there's taxable income , you do not need to amend. however, it is up to you. I guess you need some professional help from an IRS enrolled agent or a CPA in your local area form more accurate solution.


There was no money available from the estate to pay the bills until the house proceeds were received. In effect, I loaned the estate the funds to pay administrative costs. The loan was not paid until the final year. So could it be argued that the year paid was the final year. Just a thought.==>In my opinion, Both federal / state laws allow executors to deduct the costs of operating and closing the estate UNLESS they get reimbursed. however, as you said, since you got reimbursed , you can not claim reimbursement twice on the final 1041.



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Old 08-27-2015, 09:12 PM
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Originally Posted by bunny18 View Post
No, the only expense I did claim on prior year 1041 were real estate taxes, I did NOT claim any other administrative expenses, such as insurance, utilities, etc. I was wondering if even though I did personally pay those expenses when due, in prior years, I did NOT get reimbursed until the final year, when the house was sold. There was no money available from the estate to pay the bills until the house proceeds were received. In effect, I loaned the estate the funds to pay administrative costs. The loan was not paid until the final year. So could it be argued that the year paid was the final year. Just a thought.
i guess there is some tech issue involved here; to claim the reimbursement on final 1041, you need to amend those prior years' 1041s i guess. you may contact the irs for more info .



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