Whether there is an allowable loss on the sale of the house depends on the fact and circumstances as to the use of the house.
Personal use property, such as a primary residence, loss on sale is not allowed as a deduction for tax purposes.
Business or investment use property loss on sale is allowable.
An estate may not deduct a loss incurred on the sale of the decedent's personal residence unless the property has been converted to an income-producing asset or an investment property.
For more complete discussion see the articles at http://www.nysscpa.org/cpajournal/2000/0600/00-0601department/d65800a.htm
and at http://www.thefreelibrary.com/Can+an+estate+deduct+a+loss+on+the+sale+of+the+decedent's+personal...-a021128225
In general, the estate can not deduct any loss on the sale of the decedent's primary residence unless the property was held out for rent or held for business use/investment purposes.
Please ask if you need clarification.
Since this was her primary residence and not a business or rental I understand now that the estate cannot take a deduction. I will review the articles cited. Do I need to complete a K-1 form for each beneficiary of the estate? And under what box would this be? The sale of the property is the only source of bequest for the beneficiaries. Thank you.
Since there is no gain or loss there is not actually a line item on the K-1 that reports income and deductions (or that entry would be zero).
In virtually all circumstances for a final 1041 there will be a K-1 to each beneficiary that received a distribution that does show the distributive share of the income and expenses.
In most cases, there are administrative expenses that can be passed to the beneficiaries on the K-1 from the final Form 1041.
Please continue to ask if you need more help.
Administrative expenses could include attorney, accountant and executor fees as well as office expenses, investment expenses, bank charges and basically all that had to be spent on administering the estate.
Distributions of the principal or inherited shares are not part of the Form 1041 income tax return. For example, the interest income from a bank account would be shown on the K-1 for beneficiaries receiving a distribution but the inherited amount or distribution of the account would not be shown. Our individual returns are similar in that interest income is reported; but there is no information in the tax return regarding amounts contributed or distributed for the bank account.
Often a statement is included with the distribution check to document the computation and amount that is included in the check to the beneficiary. (Sales price less expenses of sale divided by the share fraction, etc.)
For the sale only the gain is shown on the tax return and the K-1 does not show the distributed amounts.
Hope this helps clarifies for you.
You are quite welcome.