Form 1041 question

[blw300zx]

There doesn't seem to be a clear answer so I'm hoping someone here can help me 🙂

When completing a form 1041 for an estate can I deduct the holding expenses (insurance/utilities/lawn care) of the house that was owned by the decedent while it is for sale?  

[GeorgeDenseff]

You will add those expenses to the basis of the home when you report the sale of the home.

[tagteam]

You have to be extremely cautious when adding expenses to basis since (a) an election to do so must be made, and (b) only expenses that are otherwise deductible can be added to basis.

[tagteam]

Another issue here is whether the estate has income from which to apply any otherwise legitimate deduction(s).

If the estate has no income and this return is not the final return, the deductions for expenses would simply be lost.

Yet another issue is whether the estate can deduct the aforementioned expenses in the first instance. In order to do so, the expenses must be paid or incurred in connection with the administration of the estate that would not have been incurred if the property were not held in the estate. In other words, if a hypothetical individual could not deduct the expenses, then neither can the estate.

See Treas. Reg. §1.67-4

[blw300zx]

@GeorgeDenseff   Hmmm...haven't seen anything about that being an option.  Can you link a resource?  Thanks!

[blw300zx]

@tagteam the estate does have income but the part that is confusing me is the statement that "Expenses incurred for the management, conservation, or maintenance of property" are deductible as administration expenses.

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

[tagteam]

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@blw300zx wrote:

@tagteam the estate does have income but the part that is confusing me is the statement that "Expenses incurred for the management, conservation, or maintenance of property" are deductible as administration expenses.

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That language (in quotes) appears in Section 212 of the Code and also in Section 20.2053-3 of the Regulations.

The language in Section 212 applies to property held for the production of income while Section 20.2053-3 applies to the estate tax (not estate income tax, as in Form 1041). With respect to the latter, the information at the link to the IRS site you posted specifically refers to the estate tax.