Estate final return

[0adestate]

My dad had a vacant property in his name, which he inherited along with his 6 siblings from his father.  Before he died he had the heirs of his siblings sign the property over to him.  His intention was to sell the property and divide the proceeds among the 7 families equally.  He would reimburse everyone who contributed to paying the property taxes over the years and then divide the remaining balance by 7 and give everyone their share.  He always told us that was his intention.  He died in 2010 and we never opened probate.  My mother died in 2019 and we never did her probate either.  Anyway we finally did probate for both of them in 2021.  We found a buyer for the vacant land and sold it to him for 315000, lower than the cost basis.  Is there a way to reimburse everyone for years of contributing to the land taxes?  We distributed over 224000 to all the families and the rest of the money was earmarked for reimbursement of past year property tax payments to those who made them.

[Anonymous_ · Accepted solution]

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@0adestate wrote:

 We found a buyer for the vacant land and sold it to him for 315000, lower than the cost basis. 

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Are you certain of your cost basis? It is likely that your cost basis is the fair market value on the date of death of your mother if you inherited the property directly from your mother in 2019.

Of course, everyone could be "reimbursed" for property taxes paid on the land over the years, but they will not be able to deduct any of the payments (or the toral) from their income taxes since payment of those taxes was not their obligation.

The distribution of proceeds to the families would be considered to be a gift at this point since you apparently had no legal obligation to make such a distribution if you father (or mother) did not leave a will or other testamentary document directing you to do so. In fact, if more than $16,000 (in 2022) was given from one individual to another, a gift tax return is required to be filed (Form 709).

See https://www.irs.gov/instructions/i709#en_US_2022_publink16784xd0e649

Your father's intention to divide the proceeds among the seven families should have been memorialized in writing, particularly in the form of a will or trust. Otherwise, the intention is nothing more than precatory and there is no legal obligation for anyone to carry out the instructions.

You might want to consult with local legal counsel.

See https://www.avvo.com/estate-planning-lawyer.html

[0adestate]

Thank you for your quick response.  My mother was not on title to the property so we assumed it was inherited from my father.  But the land was sold at a lower price than the value at the time of my mother's death.  Tax records show that it was valued at 367000 in 2019.  My parents had a trust but that property was not placed in the trust.  The actual tax records did still  have all his siblings on title when we sold it.  So we distributed most of the proceeds to all the heirs.  The balance of 91000 was used to reimburse those who contributed to the taxes.

[0adestate]

Continuing my last inquiry, would that "reimbursement" be taxable as income to the individuals who received it?

Should I just add it to the K-1 amounts?

[Anonymous_]

The "reimbursement" would not be taxable to the recipients, but would be considered to be a gift (which is not taxable to the donees - the recipients - since you, as donor, had no obligation to reimburse the recipients for their payments unless there was an agreement to do so).

[Anonymous_]

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@0adestate wrote:

Should I just add it to the K-1 amounts?

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No, that is not necessary unless there are facts that have not been disclosed thus far.

[0adestate]

So correct me if I am getting the idea you are trying to convey: The 91000 that was given out to reimburse payments for taxes is to be distributed as gifts to each person.  I would have to file a gift tax form.  How would I report this in the final return of dad's estate so that it will not show as undistributed net proceeds which could be taxable in following year?  I also had a loss of over 11000 because of the difference between the basis and the sales price.  Turbo tax in review said that I could claim the loss by carrying it back for a refund but i'd have to file a certain form.  Can you tell me what that form is?  It disappeared before I recorded the form number and now I can't find it.  I can't think of anything else that hasn't been disclosed--oh, my father had written a letter to each of his siblings heirs stating his intentions, and we have a copy of that with his papers.  I really appreciate your help.

[RobertB4444]

The $91,000 can just be done as a gift from whoever received it from the estate.  The final estate tax return can show it as a distribution to whomever receives it.  

A gift tax return only needs to be filed if any one individual received more than $16,000.

For tax years ending after December 31, 2020, losses can't really be carried back anymore.  In the final year of the estate the loss can be distributed to the heirs to be used on their personal returns.

@0adestate

[Anonymous_]

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@RobertB4444 wrote:

A gift tax return only needs to be filed if any one individual received more than $16,000.

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Only individuals file gift tax returns (Form 709). An estate does not file Form 709.

[0adestate]

So if one person receives 30000 as part of their inheritance and 10000 as a gift, would their K-1 just show 40000?  And then do I explain to them that 10000 has to be filed as a taxable gift?

[Anonymous_]

Estates make distributions of corpus (principal), income, and gain to beneficiaries in accordance with a will, letters, or court order. They do not make gifts.

Further, K-1s do not show distributions of corpus to beneficiaries. K-1s are used to report items of income, gain, deductions, and credits.

[0adestate]

Hi,

Will Turbo Tax Business guide me through the process of distributing the 11000 loss even though it is a long term capital loss?  It seems to me that the only thing i encountered was a place to declare a short term capital loss.

Thanks for helping to clarify.

[0adestate]

Is it possible to gift an amount over 50000 to an estate if that person who is now deceased is owed money? We are trying to close out my dad's estate (2010) and then we will close out my mom's estate (2019).

[Anonymous_ · Accepted solution]

The program will guide you through distributing a long-term capital loss, which should appear on Line 11 (D code) of your K-1s.

You can make a gift to any individual or entity, but I am not sure why one would want to do so (i.e., the money "gifted" would wind up being distributed anyway and would actually be considered to be a gift to the beneficiaries).

If the decedent is owned money by the "donor", then that would not technically be a gift; it would be a repayment of a debt.

[0adestate]

"Further, K-1s do not show distributions of corpus to beneficiaries. K-1s are used to report items of income, gain, deductions, and credits."

Ok, now I feel quite confused.  When I listed the beneficiaries, I also listed the amounts they each received from corpus.  Is that incorrect?