New Member

Estate's 1041: The estate sold inherited real estate (primary home) for a loss. Do beneficiary's K-1s reflect the distribution of the sale proceeds?

Background: 

- Using TurboTax Business 2018 for the estate's 1041. 

- The estate sold the inherited primary home real estate for a loss.. i.e. there is no income for the estate to report on the sale.

Question:

- Would the K-1s for each beneficiary need to reflect the distribution of the cash proceeds from the sale of the inherited real estate? 

Assumptions:

- The purpose of the K-1s is to record income that the beneficiaries should include on their tax filings. The purpose is not to record all money transfers from the estate's bank account to the beneficiaries.

- The beneficiaries also do not owe income tax on the estate's sale of the inherited property which resulted in a loss

Level 9

Deductions & credits

Assuming that the Form 1041 for the ESTATE is the FINAL Form 1041 and assets of the Estate have been distributed in the timeframe of the Form 1041:

The generated K-1s from the Form 1041 will in fact report any income of the Estate on which the Estate optionally chose not to pay tax but instead distributed pre-tax to the beneficiaries. The same would be true relative to capital loss.

Therefore, here are some illustrations to demonstrate what happens and how it is reported:

  1. Any expense paid by the Estate but allowable deduction passed to the beneficiaries (such as Executor Fees) - assuming that the beneficiary under TCAJ can deduct!
    Also showing how interest income and non-qualified dividend income can be reduced if the allowable expense is partly used to be accounted against that income.  
    Then, excess allowable deduction passes through on K-1 Line 11A
  2. Sale of decedent's home where no $250,000/$500,000 exclusion is allowable but as investment property, any capital loss is allowable and any loss or any capital gain is passed through to the beneficiaries on K-1 Line 11C.  Alternatively, see the 3rd attachment [page 8, Schedule B of Form 1041, lines 4 & 5] which is an alternative method to report and pass through any capital gains.
  3. Last attachment:Form 1041 Allocations to Beneficiary K-1  Note especially, that the corpus or principal of the Estate, which itself is post-tax, presuming that any residual income in the corpus previously had taxes paid against it on recognition of that income, is passed to the beneficiaries. See page 8 of Form 1041 Schedule B line 9 and line 10, where Line 9 is the reportable Ordinary Income that will show on the K-1 in the respective lines (5, or 6, as an example) but line 10 is the distributed principal but does not appear on the K-1 since it is not reportable income (or loss).


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university instructor
USAR 64-67 AIS/ASA MOS 9301 O3
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View solution in original post

New Member

Deductions & credits

Thanks so much for your help. When clicking on the 1st & 3rd attachment, the  result is an access denied issue... i.e. the browser returns XML w/ "<Error><Code>AccessDenied</Code>...". The 2nd attachment opened correctly.
Level 9

Deductions & credits

Change your browser or else clear cache - it is a problem local to your computer.
I used a totally different browser [Firefox] from the one I am using here [Chrome] and signed in with another of my ids - and had no problem whatsoever in accessing the three pdfs - note that the other id used in Firefox is a plain vanilla id - the same as any other taxpayer.


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university instructor
USAR 64-67 AIS/ASA MOS 9301 O3
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New Member

Deductions & credits

Thanks again for you help. I did not do anything different on my end, but I can access all of the attachments with Chrome now. Fantastic job answering with the attachments.
Level 9

Deductions & credits

you are most welcome


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university instructor
USAR 64-67 AIS/ASA MOS 9301 O3
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Returning Member

Deductions & credits

My brother passed away and was renting his home.  After the tenant's lease expired, we sold the home.  The estate final tax return (1041) has a net operating loss carryover that is passed to the beneficiaries on line 11D of the k-1.   

The house sale obviously generated cash.  Therefore, I distributed the cash to the beneficiaries.  Where should the cash distribution go on the estate's tax return? Or does it, as there is a net operating loss carryover?  

Expert Alumni

Deductions & credits

If your brother had NOL before his passing, that would be reported on the K-1. 

If the house was inherited at that time, the sale would not be reported on the K-1. 

If the value increased or decreased from the date of passing until it was sold, that would be capital gains or loss for the person that inherited it. 

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