Determining 1041 Estate Expenses Allowed

[CDA]

I am really confused with what deductions are allowed to be taken on a Form 1041 Estate Tax Return, where they go on the 1041 and how they should be reported on the K-1 form for the beneficiaries? The Estate is in Wisconsin (2 beneficiaries in Illinois and 1 in Wisconsin). 
There is no income only expenses for the 1041.

The expenses are:

Expenses Prior to Sale:

   Utilities

   Snow removal

   Final cost of healthcare

   Bank Fees

   Remaining funeral cost

   Repairs & Postage reimbursed to

        beneficiary

   Attorney Fees

After Close:

   Final Attorney Fee

Closing costs:

   Wisconsin Transfer Tax to Register of

         Deeds

    Final Water Bill to Beloit Water Utility

   Home Warranty to Universal Home l

           Protection

   Real Estate Commission-Listing Agent

   Real Estate Commission-Selling Agent

   Title-Gap Endorsement to Land Title &

          Closing Service LLC

    Title-Owner Title Insurance to Land

           Title & Closing Service LLC

   Title-Special Assessment Letter to

           Land Title & Closing Service LLC

   County Taxes

   Title-Adjustment for Owner's Premuim

[tagteam · Accepted solution]

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@CDA wrote:

There is no income only expenses for the 1041.

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If there is no income (or gain) to be reported, then you do not need to prepare a 1041 unless there is a loss on the sale of the property that needs to be passed through to the beneficiaries.

First, note that certain expenses such as medical and funeral costs are not deductible on Form 1041.

Further, note that the expenses allowable as deductions on Form 1041 with respect to the sale of the property will be dependent upon how the property was being used after the death of the owner but deductions for the management, conservation, or maintenance of estate property are generally allowed.

See https://www.irs.gov/faqs/other/misc-estate-abusive-tax-avoidance-transactions/misc-estate-abusive-ta...

Since there may be state issues (e.g., WI estate with beneficiaries in another state), and your experience with the various issues may be limited, you should most likely consult with a local tax professional.

See https://taxexperts.naea.org/listing/service/estates-gifts-trusts

[CDA]

Thanks for the quick response. I thought because the home of the deceased was sold  and/or 2 of the beneficiaries were from out-of-state that I had to file a 1041 even though there was no income. Home sale did not result in a gain or lose. Home was vacant from time of death to time of sale.

I will look at the information in link you included and also check out Wisconsin.

If unable to figure out for sure about deductions, I’ll contact one of the tax experts.

Thanks again.

[tagteam]

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@CDA wrote:

Home sale did not result in a gain or lose. Home was vacant from time of death to time of sale.

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If the estate receives a 1099-S, which it most likely will, then a return will be required (if nothing else other than to report the basis - the fair market value on the date of death).

[tagteam · Accepted solution]

Funeral costs would not be deductible on a 1041 (but would be deductible on a 706, which almost certainly does not need to be filed).

Medical expenses, and the like, would be deductible on the decedent's final return, not on the 1041.

See https://www.irs.gov/instructions/i1041#en_US_2022_publink100011505

Attorney and fiduciary fees (and miscellaneous expenses such as postage) would be deductible if paid in connection with the administration of the estate.

Other expenses that relate to the property itself, may be added to the basis of the property, deducted from the sales price (as selling expenses), or not deductible at all, depending on their nature.

[CDA]

The estate receive a 1099-S.

[tagteam · Accepted solution]

You will have to report the sale on your 1041 in that event. 

Ensure that you use the correct basis and deduct the appropriate expenses.

[CDA]

Thanks again. I will have to review my list and see what I can use.