1041 Allowable Deductions

[starpal]

Our mother passed away last fall, leaving her house to us which was sold about 5 months later with a gain over the appraisal on the date of death. There was no personal use of the house.

I understand the Closing Costs for transfer tax, title, real estate attorney are deducted from the gain.

Is the Estate attorney's fee deductible as a Professional fee in line 14? How about the probate court fee and TIN fee?

Is the Property Tax paid for the time between the date of death and closing deductible as Taxes on line 11?

Are expenses necessary to transfer title deductible? (Our municipality requires a sewer inspection to be passed for title to be transferred, so there were expenses for that.)

How about other costs to maintain the home during the interim period such as lawn care, utilities, and building insurance?

If I understand correctly, the house should be treated like part of a business for income tax purposes of the estate on Form 1041 and the distributed gain will be reported on K-1s to us.  

Thanks again!

[tagteam]

Per Section 1.67-4, the estate can deduct ownership costs that would not have been incurred had the costs been incurred by a hypothetical individual owning the same property (i.e., costs that are generally unique to having the estate hold the property).

Ref: https://www.law.cornell.edu/cfr/text/26/1.67-4

Clearly, probate costs and fees to obtain a TIN for the estate would be deductible on Form 1041.

However, typical ownership costs would not be deductible if they would have been incurred had the property not been held by the estate (i.e., had the property been held by a hypothetical individual).

Finally, you are correct in the sense that any gain will be passed through on K-1s to the beneficiaries (alternatively, the estate could pay any tax due).

[starpal]

Very good, thanks very much.

So does that mean that Real Estate Taxes are not a deductible item in line 11?

[tagteam]

Real estate taxes would be deductible regardless of whether or not the property had been held in the trust (i.e., Yes).