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jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3035
Experience:  I've prepared all types of taxes since 1987.
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I am executrix of my mothers small estate. She lived in Ocean

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I am executrix of my mother's small estate. She lived in Ocean County, NJ and died 1/8/2010. (I reside in Maine). Her condo has finally sold--at a loss. All estate debts are paid and I am about to close the estate and divide the residual equally among five beneficiaries (all siblings). I had contacted the probate court x2 and told each time I do not need to file a final account or request allowance for the estate. (The estate had received a waiver for estate taxes and there was never enough income to warrant either federal or state income tax until now with the sale of the property). Since the property was sold at a loss, does the estate file for capitol loss on the final 1041 and/or does each benificiary claim their portion of loss on their 1040. And how does this impact how I fill out the K-1 form for each of them, myself included.
Thank you.
Submitted: 2 years ago.
Category: Tax
Expert:  jgordosea replied 2 years ago.

Greetings,


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.

See http://www.irs.gov/pub/irs-wd/1998-012.pdf

 

 

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.

Thank you.

 

Customer: replied 2 years ago.

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.

Expert:  jgordosea replied 2 years ago.

Hello again,

 

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.

Thank you.

 

 

 

Customer: replied 2 years ago.
So what "label" if you will, is given to the distribution from the sale of real estate, is it considered a capital gain? And what are examples of "administrative expenses." Thank you, XXXXX XXXXX
Expert:  jgordosea replied 2 years ago.

Hello again,

 

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.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3035
Experience: I've prepared all types of taxes since 1987.
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