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
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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:
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?
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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