Computing Distributable Net Income For Estate 1041 Income Tax Return

[tagteam]

You indicated you are preparing a return for a trust, but it appears as if you may have selected "estate" when you started the return. If you selected "trust", you should have the option to change the percentages.

Form 4797 would only be relevant for business or income-producing property and, generally, Form 4684 needs to be completed in Forms Mode.

[ron6612]

This 1041 is for my mother's revocable trust to report the income and expenses for the trust after death until the end of this year.  Should I have selected estate or trust as the entity type?  At first I selected estate because the return type is for the decedent's estate but after receiving your note I was going to redo it and select trust as the entity type.  There are no business producing assets that were lost due to the casualty loss through emergency declaration, only personal items.

[ron6612]

Also, when you select the entity type as trust the 1041 entity type is marked as complex trust which it is not.

[tagteam]

It appears that you need to select "trust" as the type of entity.

[tagteam]

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@ron6612 wrote:

Also, when you select the entity type as trust the 1041 entity type is marked as complex trust which it is not.

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In About Your Trust or Estate, you can change the type of trust to "Simple".

Note that if this is a final return distributing corpus (principal), the trust is considered to be a complex trust.

[ron6612]

The only distribution is the net income less the allocable expenses.  I really think the entity type should be estate, not trust since it is separate from the decedent.  This is an initial and final 1041 estate income tax return for my mother.  I think that the casualty loss should generate a 4684 only, and not a 4684 and 4797, and the amount should roll up into line 15a on page 1 of the return, not line 7 as a business loss from the 4797.  If you are not certain on how this all works could you please direct me to another turbo tax business expert?

[tagteam]

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@ron6612 wrote:

The only distribution is the net income less the allocable expenses.  I really think the entity type should be estate, not trust since it is separate from the decedent.  This is an initial and final 1041 estate income tax return for my mother. 

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If the trust meets the following requirements, it is a simple trust:

1. The trust instrument requires that all income must be distributed currently;

2. The trust instrument doesn't provide that any amounts are to be paid, permanently set aside, or used for charitable purposes; and

3. The trust doesn't distribute amounts allocated to the corpus of the trust.

You stated that your mother had a revocable trust and, if funds were paid into the trust, then the proper entity would be a trust, not an estate. A revocable trust becomes irrevocable upon the death of the settlor (that would be your mother) and is treated as a separate, potentially taxable, entity by the IRS. 

[tagteam]

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@ron6612 wrote:

....I think that the casualty loss should generate a 4684 only, and not a 4684 and 4797, and the amount should roll up into line 15a on page 1 of the return, not line 7 as a business loss from the 4797. 

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I agree and you must have made an input error at some point along the line; the software would not generate a Form 4797 unless there was a user error (I know this for a fact since I did a test return and no Form 4797 was generated).

Where, exactly, in the program did you enter the description and amount of the loss? 

[ron6612]

Ok, then if the entity type is a trust, there is no question as to the date of death. Is that ok?  Also, what about the questions related to form 4684 rolling into 15 a as per my tax advisor?  Upon entering the casualty losses into the system the software assumes it is personal property for a business and auto generated the 4797 which rolls up into the wrong line on the 1041 as noted above. It seems like Business is very awkward for these simple scenarios??

[tagteam]

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@ron6612 wrote:

It seems like Business is very awkward for these simple scenarios??

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That is because you do not have a simple scenario. You have a casualty loss and, apparently, are entering that loss into the wrong section of the program. 

Please note that I cannot see your screen and, as a result, am left to guess as to exactly how and where you are entering this figure. If you can be more specific, that would help immensely.

I can tell you, for a fact, that my test return (with a personal casualty loss) was error-free with a flow through to Line 15a. I did, however, have to complete Form 4684 in Forms Mode. Are you familiar with Forms Mode (click the Forms icon in the upper right side of the screen)?

[tagteam]

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@ron6612 wrote:

Ok, then if the entity type is a trust, there is no question as to the date of death. Is that ok? 

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You will have the date the entity was created which would be the date of death (because the new entity, an irrevocable trust, was "created" on that date).

Hopefully, you applied for (and received) an EIN for the trust).

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

[ron6612]

Searched for casualty loss, clicked on jump to and entered them in casualty loss summary area. After the screen noting description of theft event a screen comes up titled “Business disposition forms summary “ but it is not a business disposition. I think this auto generated the 4797. There is no sale, only a casualty loss. 

[tagteam · Accepted solution]

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@ron6612 wrote:

Searched for casualty loss, clicked on jump to and entered them in casualty loss summary area. After the screen noting description of theft event a screen comes up titled “Business disposition forms summary “ but it is not a business disposition. 

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That was the wrong approach because, as you stated, it presumes the property was business (or income-producing) property.

Again, if you need to prepare Form 4684 for a personal loss, you need to prepare Form 4684 in Forms Mode.

[ron6612]

Ok, it now seems to be working correctly when entering casualty losses on 4684 in forms mode.  It is rolling up to the schedule on line 15a.  The DNI also has been automatically computed based on the net income.  The only thing that now seems to be amiss is that there is a page 2 of form 4797 still in the system with no amounts.  I was trying to delete it but couldn't figure that one out.  Thank you!

[tagteam]

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@ron6612 wrote:

....The only thing that now seems to be amiss is that there is a page 2 of form 4797 still in the system with no amounts.  I was trying to delete it but couldn't figure that one out.  Thank you!

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Try going back through the interview and answering "No" to the section you proceeded through previously for your casualty loss (i.e., the screen that came up when you did your search).