1041 Estate Income tax return

[Stevehofwa]

Its funny, using the software(block, unfortunately), if I just use the worksheet to deduct all income(as if assigned to the estate), it doesn't show any estate tax owed, but adds a box 12a to the K-1(AMT), which apparently doesn't do anything to the beneficiary unless they pay AMT. So the income disappears, can't be right.

[Stevehofwa]

The estate has rental income(a loss with depreciation), annuity income in the form of a death benefit, dividends, and tax exempt interest. It is modest, about 8K dividends, 4k annuity interest, and 2.5 k rental income after expense, and 6k depreciation of the rental. There is a modest 3K attorney fee to process the probate. The beneficiary, due to income, can't use the rental loss(now owning the rental) due to income.  What is the best allocation of income between the estate and beneficiary?  I assuming the estate can deduct the attorney fees and rental loss from income prior to distribution, so there's about 5.5k of distributable income.  I believe I can choose the allocate all of the rental income to the estate(and thus the depreciation), and all of the annuiity interest(as it would be taxed at a higher rate to the beneficiary), leaving dividends to be distributed.  

Since the estate tax rate, although very high for more substantial income , for the lower amount is very low for the dividend(since some of it is zero).Can all the income be allocated, to the estate, pay the tax, and no taxable income goes to the beneficiary?

[Stevehofwa]

So I can just set the the amount in 1041 Schedule B, lines 9 and 10 to zero, if I wish, and just pay the tax(probably owe a late penalty, since I had zeroed this out earlier).  Another advantage of keeping it in the estate is that the estate is in WA so no state tax, but beneficiary(was) in CA and so paid tax on the K-1 income.

[Stevehofwa]

Still can't use the $600 exemption?

[Stevehofwa]

Actually , this brings up another topic-if the return shows I owe money, then the 3 year deadline may not apply(although I'll still observe it).. Still applies to the beneficiary's return since that's for a refund.

[Stevehofwa]

But if you are not claiming a refund, then the 3 year window may not apply.

[Stevehofwa]

One more question-thanks so much for your help. I can basically calculate DNI as I see fit, up to the maximum possible(distributing all current income to beneficiary).  So I can just adjust DNI on line 18 until the calculated tax is 0(or whatever I want the estate to pay).

[Stevehofwa]

Authority meaning I'm the executor?  

[Stevehofwa]

So basically I set DNI until the estate starts paying tax.  I not clear anywhere whether DNI in the final year of an estate has to be the net income or could be less.  Its strange, because if it goes the beneficiary then they pay tax on the DNI, if it goes to the estate its pays the tax(if any), either way the beneficiary gets what's left over.