Estate taxes

[cferg]

I have a couple of questions concerning estate taxes. First, can the estate pay any capital gains tax on property sold during probate? Our mom's home was the only thing in probate. It was sold during probate and there was a small ($5,000) capital gain due to timing issues. After deducting attorney fees on form 1041, a taxable income of $1237.00 is shown with no tax being due on it. Is that okay or do I have to take the original $5,000 and the attorney fees and divide them amongst the heirs on the K-1's for us to deal with on our personal taxes? Next, does the money distributed from the sale, to the heirs, have to be entered on K-1 forms? Last, if the money distributed from the sale does not have to be entered on the K-1's and if there are no other monetary amounts to be entered on them, do they still need to be filed? They would just be blank, aside from each heir's personal info.

[Anonymous_ · Accepted solution]

In this instance, the estate will report the gain (and may pay the tax, if any is due).

There would then be no need to issue K-1s since the distributions to the beneficiaries would be corpus (i.e. assets of the estate, not income).

[cferg]

Thank you so much. I was told that the disbursement, from the sale of the property, to the heirs was not taxable but was confused about the K-1s since that would mean there would be no entries, as the money from the sale of the property was the only asset of the estate. The Federal instructions made it seem the K-1's had to be filed no matter what, but I felt like submitting forms with nothing but the heirs' personal info would trigger some kind of problem with the IRS. And, I was hoping the capital gains could be dealt with on the 1041 as opposed to having to divide everything up and have the heirs have to deal with it. I feel like I am now ready to get it all sent off to the tax agencies and be done with it. Fortunately, I used a fiscal year, to cover the entirety of probate, so I still have some time to file. 

[cferg]

I just want to verify one more thing before I send the 1041 off and take a deep breath. I used Turbo Tax Business to prepare the forms. As I was looking over them I noticed Line 10, Schedule B "Other amounts paid, credited, or otherwise required to be distributed." The estate bank account consisted of the proceeds from the sale of the property, a small state tax refund, and a very small ($25.00) class action payout. The last 2 were entered on line 8 of the income section of the 1041. I just want to double check and make sure the net proceeds from the property sale were not supposed to be entered anywhere on the 1041. The proceeds from the sale of the property are not reported anywhere? (Other than Schedule D Capital Gains and Losses)

[Anonymous_]

The transaction (i.e., the sale) is reported on the 1041, of course, if you are referring to that. 

So, it appears as if you have a small long-term capital gain and miscellaneous income less legal fees and the resulting total should most likely be absorbed by the exemption ($600).

[cferg]

The sale was reported on Schedule D and the Capital Gain of $5529 on the 1041. My question is whether the $76,000.00 proceeds from the property sale, that was deposited into the estate account, after the sale was completed and escrow closed, and distributed to the heirs in equal amounts, has to be shown on the 1041 itself. The 2 small miscellaneous items in the account were addressed and entered. I was told the $76,000 was not taxable and did not have to be entered on K-1's but I am trying to make sure that amount wasn't supposed to be included somewhere on the 1041 itself. Thank you for your patience and help.

[Anonymous_ · Accepted solution]

No, that amount is corpus.