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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Experience:  Over 20 Years experience
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My uncle left the family homestead located in Iowa to his 21

Resolved Question:

My uncle left the family homestead located in Iowa to his 21 nieces and nephews. We paid Iowa inheritance tax on the farm. I live in Colorado and wonder if this can be deducted on my tax return this year along with all of the expenses of selling the farm and attorney's and executor fees. My tax man says a K1 form should have been filed - the attorney who handled the estate said no - no K1. - the final check after expenses "is what it is". I consulted another tax man and he agrees with mine. Who is right?
Submitted: 1 year ago.
Category: Tax
Expert:  PDtax replied 1 year ago.

PDtax :

Welcome to the site. I will be helping you today.

PDtax :

There should definitely have been a K-1.

PDtax :

When estates and their attorneys don't file tax returns that they would be paid for, the tax man in me wonders why.

PDtax :

Depending on the way assets were brought in to the estate, it's very possible that the asset sold at no gain or loss (new value at date of death, assumed to sell for that if liquidated right away in most cases. Expenses of sale are often lumped in to the sale so no gain or loss is passed through, but the expenses of administration, including attorneys fees, etc. coould be passed through to the beneficiaries.

PDtax :

Without a K-1, you don't know what to report. It's not likely there is taxable gain, but there seems to be the possibility that the inheritance tax and other costs of administration might generate deductions.

PDtax :

An example: farm goes in to estate for $250,000 at death. $19,000 paid in real estate commission, inheritance tax, etc. $21,000 paid in legal, executor commissions, etc. Each beneficiary gets a check for $10,000 and no K-1. Is it $10,000 tax free or $11,000 and $1,000 in pass through expenses to deduct? How much did executor and attorney get? Yours is a valid question.

PDtax :

I believe I can confirm your tax man's opinion. Good luck with what you decide to do after this, and thanks for using Just Answer/Pearl.

Customer:

What I really need to know - Is Iowa inheritance tax and administration costs of this estate deductible on my Colorado tax return? If they aren't, I guess there is no point on insisting on a K1 form even though every posfessional I spoke with says that one should be filed.

Expert:  R. Klein, EA replied 1 year ago.
Inheritance tax is not a deductible item on your income tax return.

Whether you get a K-1 or not, you likely have no income tax liability as a result of this sale because the property proceeds, after the expenses of the sale, are likely less than the cost basis. However, there is a position that a loss on a sale of an inherited property can be included as a loss on your personal return (with the K-1).

There likely is no K-1 because the property was transferred on death to the 21 family members outside of the estate via the will. If the property was not owned by the estate, there is no estate tax return and therefore no K-1.

Use your inheritance wisely.


R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
R. Klein, EA and 2 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Thank you - answer was plain and simple - just what I needed to know

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