Sell of house in name of estate

[nicmonkey]

House sold in name and tax id of estate.  House sold for a loss.  1099-S issued to estate with tax id of estate.  Estate has no income.    Estate distributes cash from house sale to bene's.

1.  Does the estate have to file taxes even though no income and sold for loss?
a.  If estate does have to file taxes, how does it report it?
b.  If estate does not have to file taxes, isn't the IRS expecting something documentation due to 1099-S issued to estate.
c.  If estate does have to file, please confirm if K-1's are necessary.  I do not think they are because estate had no income and did not distribute income.  Estate also is not passing on any type of tax obligation, etc to the bene's.  
3.  Do the bene's report the receipt of cash from the house sale from the estate?  I do not think so because inherited cash is not reported at the federal level and the states in which the bene's live do not require it. 
Is this correct?

[Anonymous_]

The IRS is going to be expecting a return as a result of the estate being issued a 1099-S.

Unless a beneficiary (or other family member) lived in the house , or it was otherwise held for personal use, the beneficiaries can deduct the loss from their final K-1s (it would be a capital loss). 

[Nicmonkeye]

Thank you.

It was not rented nor was it used for investment purposes.  One beneficiary did live in house until time sold.  

The estate is the reporting entity. It has it's own tax id.  It's the estate's tax id that received the 1099-s.  I thought estates only filed if it generates $600 or more of income. There was zero income.   I guess the only reason the estate would need to file in this instance is because a 1099-s was issued?

Likewise, are K1's necessary?  I do not think the loss can be claimed by the beneficiaries since the estate itself is the reporting entity and incurred the loss  (likewise, the estate would have been responsible for paying taxes if there were a gain, etc).

With respect to the beneficiaries, the act of inheriting cash is not reportable or taxed at the federal level and is only reportable or taxed in 6 states.  Is this correct?  ( What the beneficiary does with the inherited cash after the fact can potentially trigger a taxable or reportable event.)

[Anonymous_]

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@Nicmonkeye wrote:

I guess the only reason the estate would need to file in this instance is because a 1099-s was issued?

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Yes, since a 1099-S was issued, presumably in the name of the estate and with the estate's EIN, the IRS will be expecting a return (you will simply need to report the sale in order to establish the basis and show there was no gain).

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@Nicmonkeye wrote:

Likewise, are K1's necessary?  I do not think the loss can be claimed by the beneficiaries

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Since the house was held for personal use (never rented nor held for investment purposes), there is no need for K-1s. The net loss will not be deductible by the beneficiaries. 

[Anonymous_]

Corpus (the cash in the account) is not reportable on the estate income tax return nor on any state income tax return.

A few states impose an inheritance tax in limited instances, but that has nothing to do with income or gain earned by the estate.

[Nicmonkeye]

Thank you. 

Correct.  The 1099-s was issued in the name of the estate and with the estate's EIN. 

We also have the appraisal which reflects the stepped up cost basis at the time of death.

[Nicmonkeye]

Does the estate also need to file a return for the state?

[Anonymous_]

You most likely do because many states base their return filing requirements upon whether or not a federal return (1041) was filed. Check your state's taxing authority.

[nicmonkey]

Hi,

This should be the one and only return the estate will need to file.  I have to mark the return as final and input an end date.  Can I put the date I believe the final residual corpus distribution will be made? 

The federal return is being filed soley to establish cost basis and show no gain, but it appears the state return is looking for a  beneficiary name(s) for Schedule D "Members' Information".  Since there is no income or anything passing thru to any of the beneficiaries, can I just input my name as executor?  

[nicmonkey]

The tax year on the tax form has populated months (not January - December).  The beginning month is equal to the month the decendent passed.  Is this normal?  

[Anonymous_]

You can input your name as executor but you have to specify that you are using a fiscal year.

The fiscal year will start in the month the decedent passed and can end in any month not more than 12 months from that date (e.g., if the decedent passed May 15, 2021, then a fiscal year can end on April 30, 2022).

[nicmonkey]

Ok.  A question is asking for the type of entity for the beneficiary.  Do I choose individual (with my name, Executor) or do I choose estate (with my name, Executor)?

[Anonymous_]

Individual if the beneficiary is an individual (which is almost certainly the case).

[Nicmonkeye]

Hi,

I am getting conflicting information with respect to K-1's for 1041.  Someone told me the loss from the sale of the house can be passed on to each of the beneficiaries.  In which instance would this occur?  It seemed based upon my circumstances that K-1's were not necessary and losses could not be deducted or passed to the beneficiaries.    

[Anonymous_]

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@Nicmonkeye wrote:

Someone told me the loss from the sale of the house can be passed on to each of the beneficiaries.  In which instance would this occur? 

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The loss can be passed through to the beneficiaries (on the final return) if the house was being held for investment purposes.

You already stated that a beneficiary was living in the house (or staying there) which would mean the house was being used for personal purposes. If that was the case, then any loss would be a loss on property held for personal use and could not be deducted (passed through to the beneficiaries).