I know it is late to the date of filing but this was just dumped in my lap by my husband (1 of 2 executors for Dad's estate) as the hired accountant put the estate on hold until AFTER tax deadline. Here is where I struggle.
The estate account was created using the balance of checking/savings account, the sale of the family's home (below market value for the area) and the sale of personal property. All of this is considered corpus correct?
This estate has a trust in which a beneficiary's share from the 1st distribution of the estate was placed so it would not be squandered away but used to purchase a permanent home for the beneficiary (2022). The home was purchased below FMV and the trust paid for the home plus property taxes and other fees. The trust owns the home and will be passed on to the beneficiary's surviving child when the beneficiary passes.
I am sure I will have more questions before tomorrow night. Thank you all for helping me out on short notice.
/hugs
Shabbate
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I am sorry for your loss.
You really do need to consult with a local tax professional as there are most likely state issues with which you must deal as well as the federal issues.
The threshold questions would be whether an extension was filed and the date of death. The latter is important since a fiscal year return may be able to be filed as the initial return which would provide more time for preparation and filing (e.g., if the date of death was 6/5/2022. then the initial return could be a fiscal year return with a beginning date of 6/1/2022 and ending date of 5/31/2022 - a 1041 would not be due until 8/15/2022).
@Shabbate wrote:The estate account was created using the balance of checking/savings account, the sale of the family's home (below market value for the area) and the sale of personal property. All of this is considered corpus correct?
You are correct in that the savings account (cash), the home, and the personal effects would be corpus.
However, any interest earned on the savings account would be income to the estate and the fact that the home is "below market value" is not relevant. The estate's basis for the home is the fair market value on the date of death and the difference between that figure and the sales price (less selling expenses) determines whether the estate has a gain or loss.
I am sorry for your loss.
You really do need to consult with a local tax professional as there are most likely state issues with which you must deal as well as the federal issues.
The threshold questions would be whether an extension was filed and the date of death. The latter is important since a fiscal year return may be able to be filed as the initial return which would provide more time for preparation and filing (e.g., if the date of death was 6/5/2022. then the initial return could be a fiscal year return with a beginning date of 6/1/2022 and ending date of 5/31/2022 - a 1041 would not be due until 8/15/2022).
@Shabbate wrote:The estate account was created using the balance of checking/savings account, the sale of the family's home (below market value for the area) and the sale of personal property. All of this is considered corpus correct?
You are correct in that the savings account (cash), the home, and the personal effects would be corpus.
However, any interest earned on the savings account would be income to the estate and the fact that the home is "below market value" is not relevant. The estate's basis for the home is the fair market value on the date of death and the difference between that figure and the sales price (less selling expenses) determines whether the estate has a gain or loss.
Thank you for the sentiments.
Dad passed away Dec 15, 2020. An individual tax return was filed on his behalf for the 2020 tax year. The estate's creation date would have been when he passed. However, the first account filing was to cover the period Feb 25, 2021 to Feb 2022 and end the account on any day of the month of February to balance accounting. No federal tax return was filed for the estate for the 2021 tax year as there were only deposits from checking/savings accounts as the house was not sold until 2022.
Does this help?
Shabbate
First, be sure to hire a CPA Firm that has an estate specialty.
Two, the beneficiaries of the TRUST/estate become liable for its taxes (assuming a Trust and Will were set up) and each will receive a K-1 Form for the respective tax years. K forms may cover past years meaning you may have to amend past years returns. Your accountant will prepare K forms for the individual beneficiaries.
Third, I made the mistake of filing a return for the estate which is wrong. The beneficiaries receive K forms because for tax purposes they are the estate.
Four, the estate/trust account can pay expenses of the account which is managed by the Executor. These would include attorneys, accountants, property taxes, appraisals, and so on. Your accountant will advise on allowable expenses. These will impact the value of the estate distributions.
Five, the trust and will may specify different distributions for each beneficiary therefore individual beneficiary tax situation may vary and require separate accountant and attorney advisement.
Finally, the estate may have future tax year distributions which will be determined by the Trust and/or Will. You will receive a K Form for the appropriate tax years. This is why and accountant is important.
Note: I suggest using a large CPA firm that is an IRS Certified Filer. That means the CPA is recognized by the IRS as a first tier representative. This means the IRS trust accountant filings at a highly accurate level meaning the chance of an audit is decreased.
Disclaimer: I am not an accountant or attorney and my comments are based upon the experiences I had with my family trust an as estate executor. Your trust, will and assets will be different so you MUST obtain CPA and attorney advice.
There would have been no interest on the savings account for Dec 2020 - Feb 2021 except a couple of dollars before everything was moved to the estate. And since the house did not sell until 2021, there was no income on the estate thus no initial return was filed for 2021.
@Shabbate wrote:
And since the house did not sell until 2021, there was no income on the estate thus no initial return was filed for 2021.
With respect to the sale of the house, did the estate receive a 1099-S for the 2021 tax year?
Regardless, if the estate sold the house in 2021, a 1041 most likely should have been filed to report the sales price and the basis (the difference between the two would determine any gain or loss).
EDIT: Disregard the foregoing as I just read your (intermediate) post where you stated that the house was sold in 2022: "No federal tax return was filed for the estate for the 2021 tax year as there were only deposits from checking/savings accounts as the house was not sold until 2022."
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