Level 14
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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).