How to report sale of decedent's residence on form 1041

[blesher1]

Received 1099-s for sale of decedent's residence. If it was not used as a personal residence, it should report as a capital gain or loss on Schedule D form 1041.  Form D does not compute

[ScruffyCurmudgeon]

@DABny @blesher1

DABny sent me an email to point out that all of my exhibits to answers were lost in the transition from one Intuit answer board to another.  

I apologize for not following up or even being around this year.  Since early January, 2020, my retirement ended and I have been in the midst of FEMA and state Covid-19 task forces - and frankly where I find myself now having to be between running 8 to 9 Zoom conferences where herding 40-60 cats over a 3 hour session takes time and other responsibilities of policy -- I just have no time this year to be here.  If you really need a missing exhibit to any answer send me an email

I've attached a PDF which is an update last year that goes both ways on gain or loss of an asset of a Decedent and how to report it on Form 1041, in this case the sale of Decedent's personal residence (no, it then becomes an investment asset no longer personal residence)

UPDATED FOR 2018 Tax Year (2019) - ANSWER IS SPECIFIC TO EXECUTOR FILING FORM 1041 NOT 1040

Specific answer for where the sale of the decedent's residence is sold in the FINAL year of filing for either the decedent or the decedent's estate.  NOTE that the sale of a decedent's personal residence is reported on FORM 1041 and not Form 1040 if the Estate sells the home.  Form 1041 is not supported by TurboTax personal products but instead by TurboTax "BUSINESS" desktop product.
If the home is inherited by the beneficiaries, and the beneficiaries then sell the home, this question and its answers do not apply and instead, the beneficiaries report the sale as if it was the sale of an investment asset on their own personal Form 1040.

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Eight images - step by step

#1:  Schedule D entries showing the loss on sale of house
- An inherited asset by law is deemed to be held long-term with value as of date of death

#2: Form 1041 page 1 - proforma allocation of maximum of $3,000 write-off of loss against any possible income - whether or not

#3: Schedule D Part II - Calculation that results showing Long-Term Capital Loss

#4: Schedule D Part III  - Loss represented

#5:  Capital Loss Carryover - will stay within Estate until distributed out to Beneficiary

#6: Amounts to Allocate to K-1, Worksheet - the loss showing in 11C is available to allocate; this does not mean you have yet allocated it - at this point it is still in the Estate

#7: K-1 for Beneficiary before you plug in to the Allocation Smart Worksheet the percentage to be allocated to this beneficiary - not that no loss is allocated at this time#8: 

#8: In Beneficiary's Allocation Worksheet in the K-1 - plug in the percentage to allocate to this beneficiary - example here 100% - and magic!!! the loss is allocated on Line 11 Code C.

[ScruffyCurmudgeon]

The Form 1041 is complicated by the many linkages between the 1041, Schedule D, and the worksheets for distributions and the beneficiary worksheets.

When you say "(Schedule) D does not compute" may I ask specifically what entries you made and what you got as result.

Some examples are below but the to answer properly, need to know what it was you got, and from what.

[blesher1]

Thanks for your help. I figured out how to get info on Schedule D as your examples showed.  However, it is the final year of the estate and instead of limiting the loss to the $3,000, the total loss should be distributed to beneficiaries & the k-1 worksheet shows the correct amounts, but is not distributing to individual k-1s

[ScruffyCurmudgeon]

Don't forget, as they say in Chicago, VOTE EARLY AND VOTE OFTEN

[blesher1]

I have figured it out but it wasn't easy.  This is not user friendly!  Thanks again.

[ScruffyCurmudgeon]

Some 14 years ago, when the 1041 was first a possible introduction to TurboTax, the counter arguments were that there was too small a market, that consumers [families with inheritances] would turn to an accountant or attorney, that the market controllers - accountants and attorneys - would not tolerate a consumer-based 1041 process available, and lastly that what starts out looking simple can very quickly become complex.

Only the last argument turns out to be true.

[Phatparents]

I am trying to view your examples:   2019 Sale of Decedent's House by Benficiary - LOSS or GAIN Scruffy.pdf

& wile-e-coyote hope thats not all.jpg  & N95 eye protect.jpg

I cannot seem to be able to download or view them.  Am I doing something wrong?

FYI - I am trying to figure out this 1041 thing...my mother passed away, the house was in a living trust, my siblings and I sold the house and split the funds, and now have a 1099-s in the amount of the sale.  I was hoping that your forms would give me some guidance. 

[RossMillikan]

I have a trust that inherited a rental property which was sold this year.  When I enter the rental information I check the box that says it was sold.  I enter the sale information, which results in a loss.  The loss is showing up in part II of the 4797 and gets characterized as an ordinary loss, not as a capital loss.  If I uncheck the box that it was sold this year I can enter the sale as a capital asset along with stock sales.  It then gets treated as a long term capital loss but the rental gets depreciated all year.  How do I get it to stop  the depreciation when the property is sold and treat the sale as a capital loss?

[MarilynG1]

@RossMillikan When you sell a Rental Property, you still get to claim current year depreciation.

Did you receive a K-1 or 1099-S to report the sale?  Or are you preparing a 1041 Trust Return?

If you have not been claiming Rental Income/Expenses, you would enter the sale as a 'Sale of Business Property' on Form 4797 for an ordinary loss. 

If you have, click this link for info on How to Enter Sale of Rental Property. 

Click this link for more info on Rental Property in Trust. 

[RossMillikan]

I am preparing a trust return.  I received a 1099-S for the sale.  I have been claiming the rental income, depreciation, and expenses.  When I declared it sold this year it entered the sale on Part II of the 4797 because the date of death was within one year.  My understanding is that it should be considered long term because it was inherited, so I backdated the acquisition to get it in Part I of the 4797.  That seems to work out on the 4797, but the loss flows to the 1041 as an ordinary loss, not a capital loss.  It then offsets all the ordinary income first and then offsets capital gain.  I believe it should offset capital gain, then offset 3000 of ordinary income and carry over the rest.

[ReneeM7122]

Correct, the capital gain on inherited property is long term.

Here is an IRS FAQ about inheritances.   Beneficiaries report the sale as if it was the sale of an investment asset on their own personal Form 1040. 

Please see the following thread.

@RossMillikan

[789349]

Where do you put the date of the sale from the rental property and have to have a form 4797 recapiture

[789349]

it was used as rental property first. Trying to find where to put the date so it will adjust the depreciation as well

[789349]

where do you put the date sold on the sale of assets