Can ALL attorney fees be deductible on a 1041

[charjean47]

1041 Line 14.  Are the total varied attorney fees for the estate deductible?  The only monies received on our mother's estate was interest on U.S. Bonds.  Do we only deduct monies spent on the work the attorney did regarding the bonds or all of the attorney fees?

Does this deduction go on line 10. of the k-1?

Thanks

[Anonymous_]

" Are the total varied attorney fees for the estate deductible? "

You can deduct, in full, the fees paid in connection with the administration of an estate that would not have been incurred if the property were not held in an estate (e.g., charges incurred for preparation of returns, probate costs, et al).

To the extent that the fees paid by the estate would normally be incurred by an individual, they are subject to the 2% floor.

See https://www.irs.gov/instructions/i1041#idm140376225780656

" Does this deduction go on line 10. of the k-1?"

The deduction does not appear on the K-1 unless there is a net loss (i.e., the deductions are greater than the income) and the estate is terminating and filing its final income tax return.

Rather, the fees are deducted against any income received by the estate on Form 1041 and, thus, reduce the estate's taxable income or the income available to be distributed to the beneficiaries.

[charjean47]

Please verify with me for this is the last thing I have to do regarding the taxes on this estate.  It has been overwhelming and I have never done this before.  

With your help, I believe I will deduct the full amount of attorney fees paid in 2017 that covered charges from 2015 through 2017 regarding the estate (1041 Line 14) from the U.S. bond interest income (1041 line 1).

I am not sure about Schedule K-1, Interest Income Line 1.  
There are 4 beneficiaries.

Before:  I divided the amount of bond interest the estate received by 4 and entered that amount on each k-1.

After revising 1041 and deducting attorney fees:   I divided 1041 line 18 by four and entered this amount on k-1 line 1 for each beneficiary.  

The 4 beneficiary's received the U.S. bond interest amount that was divided by 4 in 2017.  
Attorney fees were NOT subtracted from the amount the beneficiary's received in 2017.  Does this make a difference?

Now that I have deducted attorney fees on 1041, do I enter the amount the beneficiaries ACTUALLY received in 2017 on k-1 line 1, or do I enter the amount of 1041 line 18 divided by 4 for each beneficiary on k-1 line 1?

Thank you again!

[charjean47]

Your help relieved my concern about doing this correctly.  I appreciate that you took time out of your day to help me.  I will record the 4 way splits on Schedule k-1 ------ line 1.  I was hoping you would get back to me because you explain your answers so well.  I am done!! Thank you TagTeam.

[Anonymous_]

Yes, Line 1 (interest income from the bonds).

[charjean47]

Thought I was finished, but I have another question.  We paid property tax in 2017 on my mother-in-law's home where she resided before passing.   I read the 1041 instructions and state and local taxes were mentioned, but I am not sure if "any deductible taxes paid or incurred during the tax year that aren't deductible elsewhere on Form 1041" could being referring to Real Estate taxes.  May I deduct the real estate taxes paid in 2017 on 1041, line 11?  Thanks

[Anonymous_]

" I believe I will deduct the full amount of attorney fees paid in 2017 that covered charges from 2015..."

That is fine provided the fees were actually paid in 2017 (you cannot deduct any fees paid in previous tax years).

" Do I Divide the new figure on Line 1041, Line 17 (U.S. Bond interest minus attorney fees) by 4...."

Yes. You essentially subtract the total fees paid from the total bond interest to arrive at the adjusted total income (that is entered on Line 17) and then the remainder is split four ways.

"Attorney fees were NOT subtracted from the amount the beneficiary's received in 2017."

That is irrelevant. The beneficiaries will report the amount on their K-1s, which is their share of the interest income less expenses (fees) reported by the estate on the 1041. Any excess they received is simply a distribution of the corpus (principal) of the estate and is not taxable.

[charjean47]

Thought I was finished, but I have another question.  We paid property tax in 2017 on my mother-in-law's home where she resided before passing.   I read the 1041 instructions and state and local taxes were mentioned, but I am not sure if "any deductible taxes paid or incurred during the tax year that aren't deductible elsewhere on Form 1041" could being referring to Real Estate taxes.  May I deduct the real estate taxes paid in 2017 on 1041, line 11?  Thanks

[charjean47]

Just reread 1041 Line 11:  This was noted:  "State, local, and foreign real property taxes".  Does real property tax mean real estate tax?

[Anonymous_]

"Does real property tax mean real estate tax?"

Yes, it does include real estate taxes.

[charjean47]

Still reviewing.  1041, Line 1--The bond interest on Line 1 was actually given to the beneficiaries----no deductions.  Do I enter the amount from Line 1,  (Interest Income) before deductions or enter the amount from Line 17 after deductions on Schedule B, Line 9?

[Anonymous_]

In your case, Line 17 (which should be the same as Line 15 of Schedule B) would be entered on Line 1 of the K-1s in proportionate shares.

[Anonymous_]

Aslo, with respect to Lines 9 and 10 of Schedule B, that is typically specified in the will and, generally, **all** of the income must be distributed currently. Therefore, the amount distributed is entered on Line 9 (considering deductions for expenses from income). Any excess over net income would be entered on Line 10.

[charjean47]

Thank you.  1041 AND K-1s are done thanks to your help.  I am reviewing IL-1041.  On Line 15.  Instructions state "enter the total interest received from bonds that is included in your federal taxable income".  Do I enter the bond interest before deductions or after deductions on line 15?   IL Schedule K-1-T Step 3, Column A and Step 5, Line 36b, Do I enter bond interest before or after deductions?  Thanks

[Anonymous_]

I am not 100% certain, but I believe those lines are **subtractions** from any taxable income you would report since interest from debt obligations of the U.S. government (e.g., U.S. Treasury bonds) is exempt from state/local taxation.

As a result, Illinois would be prohibited from taxing the interest on the bonds whether it was distributed or not. Regardless, it appears as if you would enter the entire amount of the bond interest without deductions.