Pass gain from stock sale on to heirs via K1 1041

Forum|Forum|4 years ago
April 22, 2022
2 replies
1 view

I have looked at other's questions regarding this topic, but I'm not sure my situation has been covered. I am closing an estate and in order to do this I need to sell some stock to be able to cover remaining expenses. This stock is in a brokerage account that will then be passed on to beneficiaries. This means that, unlike the sale of a home, the beneficiaries are not actually receiving this gain they are simply receiving the brokerage account with the remaining stock in it. Would it be ok to pass this gain on as income in a K1? If not, I will need to sell more stock to cover the tax.

Mike9241

Level 15

if the estate's assets are distributed before the tax year-end, that will carry out any capital gains realized by the estate

LudwigVan_fan

Alumni - Champ

This is what I see:

1. Closing Estate

2. Need to sell some stock

3. Other expenses

4. Unsold stock will divided and passed to beneficiaries.

First, you might find this helpful

https://www.irs.gov/businesses/small-businesses-self-employed/deceased-taxpayers-filing-the-estate-income-tax-return-form-1041

Without being able to see exactly how the F1041 will end up, difficult to determine. But, it may be that the gain would be passed through. But you need to distribute out of the estate. If you need the gain to pay expenses (should probably be deductible expenses), you may zero out the gain and the estate would pay no tax.

If the income is not reduced to zero, and this is the final return, there should be a distribution of the income and the beneficiaries would pay tax, not the estate. Same as if there is a loss. Final year, any loss would be distributed to the beneficiaries. Whether deductible or not at their level depends on a lot of factors.

Depending on how long the estate has been in existence, there may not be much gain in sale of stocks as there should be stepped- up basis for the stocks.

**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**

MatildaAuthor

Level 5

This estate has taken a long time and the the gain is significant on this stock even with the step up.

I also cashed out a 401K so the income passing on to beneficiaries is high.

Unfortunately capital gains are subtracted out of the distributable net income on Schedule B (Income Distribution Deduction) line 6 and the resulting amount entered on 1041 line 18.

Since the capital gain is not included in the distributable net income it is taxable income on line 24.

I would have to override the schedule calculation to pass the gain on to beneficiaries in K1 forms - can I do that?