Have a Tax Question? Ask a Tax Expert
Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.
Who paid the expenses?
Hello Stephen, I paid the expenses. Some of the money came from the estate and some just from my checking account
Well, I'm not entirely sure what you have done so far. However, if the estate paid the expenses you cite, the estate could deduct those expenses from the estate tax or the estate's income tax but not from both. That would presume that the expenses you are talking about are accounting & tax work related to the estate's probate & tax work.
What tax are you referring to when you say "estate tax"? Estate or Income Tax for the estate?
Yes, Stephen. the expenses are accounting and tax work related the estates tax work.
What about money I paid that basically came from my job. I mean earned income. It seems that I should be able to deduct that. Especially when it was used to pay for tax work related to a building I am fixing up and will rent out. The building was part of the estate.
If, for example, you incur excess expenses over income in the FINAL tax year of the estate (on Form 1041), you would have what are called "Excess Deductions on Termination" which would be passed through to the residual beneficiaries and deducted by them on their personal returns as miscellaneous itemized deductions.
Was the estate subject to estate tax on Form 706?
Has the estate deducted any of these expenses on either that form or on the estate's income tax return on Form 1041?
let me check that
If after you obtain title to the commercial building and have expenditures related to same, those expenditures would either be deductible against your rental income or depending upon the nature of the expenditures, they would be capitalized into the tax basis of the building (as improvements) and be subject to depreciation.
Accounting & income tax preparation of your personal income tax returns would be deductible either on Schedule A or Schedule E if related to your commercial rental property.
Stephen, that seems helpful. Does "excess expenses over income" mean a situation where my expenses would be greater than my income and the difference might be deductable?
No. That would be reported to you by the estate on Form K-1 of the final 1041 of the Estate.
Do you have an accountant doing all this work for the estate for you?
When was the date of death & do you know what your tax basis in the property is and how to compute the related depreciation?
Yes, I do have an accountant. I would be way over my head without one. the death was in may of 2011. the property was completely depreciated over the 25 years the decedant owned the property\
Anyway, it sounds as if I can deduct some of the tax expenses involved inthe estate. If the buildiing is 50% of the estate, I hope to deduct 50% of the accounting and tax expenses involved in closing the estate
Well, presuming that you inherited the property as a result of the decedent's death, you should receive a step-up in tax basis to the fair market value at the date of death and start to depreciated the building all over again.
You have to make an allocation between land & building, generally based upon the ratio in the real estate tax assessment.
Has the accountant been doing the tax work for the estate?
How many beneficiaries are there of the estate?
Is there an attorney and CPA for the estate? It sounds like you should have already received some tax reporting information related to the estate for 2011 & 2012?
You can't deduct estate expenses directly on your personal income tax returns. If you incurred expenses related to the estate, you should be able to obtain reimbursement from the estate for those expenditures.
Yes, the accountant has been doing the tax work. Three beneficaries, but I got almost everything. We have filed the last return for the estate and closed the estate. The step up in basis sounds good. IS there a way to use the basis to ofset some of those tax preparation expenses for the estate tax?
To clarify, has the commercial building been rented all this time?
No, I am still working on it. It has been a full time job. I quit my regular job and have been workinig on the building
Is the accountant a CPA or EA (Enrolled Agent)?
What was the approximate total value of the estate?
The CPA should be providing you with the information you need re basis, expenses, etc. for your personal taxes.
How much is the building worth?
OK, well the building portion would be depreciated over 39 years; have you filed your 2011 & 2012 returns yet or are you working on 2012 now?
will file 2012 tomorrow
So, you aren't using the CPA to do your personal returns?
I am using the cpa to do personal returns. Never did before, but my life has gotten more complicated
I'm sure, but what have you done about the building? Do you have k-1s from the estate for 2012? There must have been income and if you received distributions of principal or income that would affect your personal returns.
I am not sure about K-1s. Income has been mainly interest and unemployment. I would like to rent the building, but have not done so and looks as if will not in 2013
OK, no, I was talking about the estate's income, not yours. So, has the CPA completed your personal returns for 2012?
yes, that is the return to send in tomorrow. the cpa did that
So, what are you asking these questions about 2013?
I am just thinking of making some money off of rent in 2013 and using estate tax preparation expense to offset some of that income. If they will let me
I can't tell how he's handled things so far from what you are telling me, so you really need to sit down with him & have him explain what is going to be done for 2013 for you personally. You have a lot more important things that will affect your personal returns than expenses you have paid. I'm sure he has a plan for how everything will be treated; it just isn't obvious to me based upon what you have told me.
If you place the building in service (start to rent it) you'll have some fairly significant depreciation expense for 2013/2014. You don't have much time left to generate income for 2013.
Okay, perhaps this tax situation has a lot of factors that can complicate this.
You are right I probably cannot make any income until 2014
It really does. I've done mostly estate work over the last 10 years I was in public practice & it sounds like there's more to the story that you may not have the gory details about. Your questions need to go to your CPA as he knows what's been done so far. It sounds like you may not have the details & I can't tell from what you've said.
If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Thanks again for using us for your tax and financial questions. You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;
Please remember to rate my response; that is the only way we get credit for our work.
Happy to do so, great to get some help on a Sunday morning. Rather than sit around and worry
Don't worry, you should be in good shape.
You just need to understand it better for your own peace of mind.