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Old 03-15-2017, 09:41 PM
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Final Form 1041

Hello All,

I am an executor of a trust filing a final Form 1041. I have a couple of questions/concerns I would like to run by you all to make sure I am filing this form appropriately.

First, let me list some facts:
1. The decedent passes away November 2015. As such, I filed a 1040 as well as a 1041 (the Form 104--with EIN#-- reported no income).
2. The trust is a complex trust.
3. In 2016, the decedents house was sold..there was no mortgage on the house and no capital gains or losses.
4. The title of the house belonged to the trust.
5.The funds from the house was distributed equally to two beneficiaries.
6. I am also preparing Sched. D 1041 and Form 8949 even though there are no capital gains or losses.

Questions:

1-a: Can I include closing costs (i.e. $20,000) on the Form 1041, line 15c? (Allowable misc. deductions...) 1-b: If so, line 22 would would be a negative value. So then, can the negative value on line 22 be carried over to the beneficiary's 1040? If so, where is this reported?

2. Where do I report the beneficiary's cash distribution from the sale of the house in the K-1? (my guess that it is not reported because the cash distribution from the sale of the property is less than $5.4M)

Thank you very much for your time!!!



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Old 03-15-2017, 11:58 PM
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Posts: 5,233
1-a: Can I include closing costs (i.e. $20,000) on the Form 1041, line 15c? (Allowable misc. deductions...) 1-b: If so, line 22 would would be a negative value. So then, can the negative value on line 22 be carried over to the beneficiary's 1040? If so, where is this reported?=======>>I may give you some figs; Here is an outline
say if there is realtor commissions and other closing costs, then they are added to the property's cost basis and reported on Sch D.
Federal income taxes are not deductible on any federal tax return including the 1041. You also can not deduct penalties and interest resulting from late tax payments. The state taxes can be deducted on the 1041.
The medical and credit card debts are not deductions for the 1041. The only place these could have been deducted would be on the 706. Did the retirement plan have an individual as a beneficiary? If so, the plan administrator will send the beneficiary a 1099-R to report on their individual tax return. If there was no beneficiary or the estate was the beneficiary, the distribution would be reported on the 1041.
The mortgage interest and real estate taxes paid would be deductible on the 1041. The utilities, insurance, repairs, property management, moving and storage fees are not deductible.

You will not need to file the statement waiving the 706 deductions since a 706 was not and will not be filed.for more pro help plz contact an enrolled agent / a CPA doing taxes in your local area




2. Where do I report the beneficiary's cash distribution from the sale of the house in the K-1? (my guess that it is not reported because the cash distribution from the sale of the property is less than $5.4M)======> Every domestic estate with gross income of $600 or more during a tax year must file a Form 1041. If one or more of the beneficiaries of the domestic estate are nonresident alien individuals, the personal representative must file Form 1041, even if the gross income of the estate is less than $600 The beneficiary of a decedent's estate or complex trust must include in his or her gross income the sum of The amount of the income required to be distributed currently (as entered on Sch B of Form 1041), or if the income required to be distributed currently to all beneficiaries exceeds the Distributable Net Income; say,Items listed on Sch K-1 (Form 1041) box 14 with code I must be manually entered on your tax return. I believe that this particular income should be included on Form 1040 line 15b. Tax software is unable to do it for you directly from the K-1 entry.
To get this to appear on line 15b ,you can enter a dummy Form 1099-R. For the payer information I would probably indicate that it came from a Sch K-1 (Form 1041) and I would enter the estate's EIN. I would then enter the following in the boxes:
Box 1: The amount of income reported on the K-1
Box 2a: Same as box 1
Box 2b Taxable amount not determined: marked
Box 7: Code 4 or so on



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Old 03-16-2017, 11:44 AM
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Join Date: Mar 2017
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Final Form 1041

Wnhough,

Thank you for your time in answering my questions. I really appreciate it.

I do have some follow up questions....

1. So to be clear, I am unable to write off closing costs from the sale of estate--these closing costs are to increase the basis of the property. Additionally, then, if the basis of the property is the same as the sold price, adding the additional closing costs would increase the cost basis and would result in a loss of the sale of property.

2. The K-1 (1041) would not indicate a distribution to the beneficiary if there are no capital gains or losses. The distributions to beneficiaries will be noted on Sched. B, Form 1041. Otherwise, any capital gains would be noted in the K-1 (1041), box #14, with instructions I....then those capital gains would also be noted in Form 1040, 15b. Is that correct?

Thanks again for your help!!!



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Old 03-16-2017, 06:22 PM
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Posts: 5,233
Quote:
Originally Posted by Kasanami View Post
Wnhough,

Thank you for your time in answering my questions. I really appreciate it.

I do have some follow up questions....

1. So to be clear, I am unable to write off closing costs from the sale of estate--these closing costs are to increase the basis of the property. Additionally, then, if the basis of the property is the same as the sold price, adding the additional closing costs would increase the cost basis and would result in a loss of the sale of property.

2. The K-1 (1041) would not indicate a distribution to the beneficiary if there are no capital gains or losses. The distributions to beneficiaries will be noted on Sched. B, Form 1041. Otherwise, any capital gains would be noted in the K-1 (1041), box #14, with instructions I....then those capital gains would also be noted in Form 1040, 15b. Is that correct?

Thanks again for your help!!!
1. So to be clear, I am unable to write off closing costs from the sale of estate--these closing costs are to increase the basis of the property. Additionally, then, if the basis of the property is the same as the sold price, adding the additional closing costs would increase the cost basis and would result in a loss of the sale of property. ===> a loss on a personal residence is never deductible. HOWEVER, It is no longer a personal residence when sold by the estate and a loss can be claimed. You need to file a Form 1041 for the estate and report the loss. The Sch K-1 will report the amount of the loss to the beneficiaries. Many times an estate may have deductions in excess of its income. The Executor has a choice of deducting certain estate administration expenses or losses on either the estate tax return on Form 706, or the on Form 1041. In a situation where it is not a taxable estate , say, all assets are passing to the spouse, and there is an unlimited marital deduction, then, it doesn't necessarily make sense to reflect the estate administration expenses on the estate tax return; there is more value to the beneficiaries of the estate than having those expenses reflected on form 1041. By being reflected on the return, these expenses and losses can be used to shelter any income earned by the estate during the time that the estate is open, and potentially flow to the beneficiaries upon the filing of a final estate income tax return, Form 1041, in the final year for filing the return.You cannot claim the estate administration and other expenses of loses on both returns - if a deduction is claimed for income tax purposes on the 1041, the Executor must file a statement that no estate tax deduction for those items has been allowed and waive any right to take an estate tax deduction for them.if the estate / trust has for its final year deductions excluding the charitable deduction and exemption in excess of its gross income, the excess is allowed as an itemized deduction to the beneficiary succeeding to the property of the estate or trust."
Note that these deductions will be subject to any limitations and be applied to the beneficiary because of his or her taxpayer profile. Even where an estate has no income, a 1041 should be properly filed each year in order to record the deductions and/or losses of the estate, which may, in the estate's final year be passed along, on a pro rated manner to the beneficiaries estate for utilization in their personal tax returns.
-

2. The K-1 (1041) would not indicate a distribution to the beneficiary if there are no capital gains or losses. The distributions to beneficiaries will be noted on Sched. B, Form 1041. Otherwise, any capital gains would be noted in the K-1 (1041), box #14, with instructions I....then those capital gains would also be noted in Form 1040, 15b. Is that correct?=======> If the income distribution is discretionary, meaning the trustee or estate administrator has authority to decide whether beneficiaries will receive distributions, any income not distributed isn?t deductible on 1041 and is not reported on Sch K-1. The trust or estate is responsible for paying the income tax on this income, not the beneficiaries. it does not include qualified dividends (because they are just a subset of ordinary dividends, which are included) nor capital gains for example say there is a code E then, Code E, Line 14 doesn't appear to have much utility other than reporting the beneficiary's share of "net investment income". If you were to enter only the figure on Line 14 with an E Code into your 1040, you wouldn't see that figure appear anywhere on your tax return unless you were also filing Form 4952 for the Investment Interest Expense Deduction.

If any assets were sold during the year, the fiduciary must also file Sch D with Form 1041. Before completing Sch D, separate your transactions based on whether the asset was held for one year or less before it was sold. You must report short-term gains and long-term gains in different sections of Sch D. You neeed to list each short-term asset on a separate line in Part I of Sch D and report your sales of long-term assets on separate lines in Part II. Include a brief description, the dates you bought and sold the asset, its cost basis, the sale price and the gain or loss you realized on the sale. For stocks, bonds and mutual funds, your 1099-B form may list the cost basis. If it does not, ask your broker for the original purchase price.alsop for Pass Through Gains and Losses
, you also need to list any gains or losses from other estate/ trust in Part I or Part II, depending on whether the gain is short-term or long-term. Transfer your gains or losses from Forms 4684, 4797, 6252, 6781 and 8824 or etc to the appropriate lines on Sch D. you need to enter any capital loss carryover from the previous year and total all of the columns.
You need to add the columns in Part I to find your net short-term gain or loss. Repeat this process for Part II to determine your net long-term gain or loss. Separate each total between gains or losses allocated to the estate or trust and those allocated to its beneficiaries. List these amounts in the appropriate columns on lines 13 and 14a. Include any unrecaptured Section 1250 gain from the sale of depreciable real estate on line 14b. Complete the 28-percent rate gain worksheet if column 3 of lines 13 and 14a are both greater than zero and the trust or estate has sold collectibles or qualifying small business stock. Total each column to find the net gain or loss.If you have a net loss on line 15, column 3 of Part III, complete Part IV to determine your capital loss deduction and any applicable capital loss carryover for the next year. For 2016, you may deduct capital losses up to $3k. If your net loss from Part III exceeds $3k, you need to use the capital loss carryover worksheet contained in the instructions for Sch D..

Use Part V to calculate your taxes due if column 2 for lines 14 and 15 are both greater than zero. If either of these columns does not have a positive value, you must use the tax calculation worksheet from the Sch D instructions to determine your capital gains tax for the year. as said you need to visit an Enrolled Agent or a CPA doing taxes in your local area for Accuarate professional help.



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