A rental property listed in my mother's trust, but not deeded to the trust before death, was transferred into the trust by the court, via a pour over will in a summary probate proceeding. I am trustee. I purchased the house, without objection, at the appraised value on the date of death, to have money to pay trust expenses. All other rental properties were specific devises, deeded directly to the beneficiaries.
I am filing form 1041, regarding rental income and expenses coming into the trust after death.
1. From what I understand, the transfer of the rental properties constituting the corpus/principle directly to the beneficiaries, is not taxable and does not constitute income and is not reportable on form 1041 or form K-1 or elsewhere?
2. As to the rental property transferred into the trust by the court and listed in the trust document, that is also trust principle/corpus? Am I correct in thinking that the proceeds from the sale at exactly the property value on the date of death, without gain or loss, does not constitute income or loss needing to be reported on form 1041 or beneficiaries' K-1's, but simply converted the real property principle to cash principle. In other words, the sale proceeds retain their status as principle, there being no income or loss? And, being principle and not income or loss, is not reported on form 1041. I also note that there is no place on form 1041 to report the conversion of real property corpus to cash corpus--only to report income, had there been any gain above the corpus basis?
