Estate filing

[Kristina5]

I understand that an estate must file a return if it has gross income of at least $600. What constitutes income? My dad passed away last year, and his investment accounts increased in market value more than $600 before they were distributed to the beneficiaries (but dividends and interest did not reach $600). When the accounts were distributed, they were transferred in-kind. So nothing was actually cashed out. Does the increase in value constitute 'income?' Also, if his house increased in value from when he passed away until the time we sold it, does that appreciated value count as well? I just want to make sure the estate filing is actually required. Thank you!

[LeonardS]

"... Examples of assets that would generate income to the decedent’s estate include savings accounts, CDs, stocks, bonds, mutual funds and rental property." Ref: IRS 

This link Deceased Taxpayers – Filing the Estate Income Tax Return, Form 1041 has information that you may find helpful in preparing the estate tax return.

[Anonymous_]

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@Kristina5 wrote:

When the accounts were distributed, they were transferred in-kind. So nothing was actually cashed out. Does the increase in value constitute 'income?' Also, if his house increased in value from when he passed away until the time we sold it, does that appreciated value count as well? 

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If the investments (that had appreciated) were transferred in-kind, that does not count as income; it would only count if the estate had actually sold the investments prior to distributing them to the beneficiaries (or the investments generated interest or dividend income).

With respect to the house, any gain would have to be reported if the estate sold the house.

[Kristina25]

Thank you. I included the sale of the house in turbotax (business version), which showed a loss due to the stepped up basis, and the expenses incurred to sell it (looking at Form 8949). Turbotax generated K1s for us three beneficiaries. However, boxes 1-14 on all K1s are blank. I would think it should reflect the loss, yes? The K1 worksheets do reflect the correct income required to be distributed for each beneficiary. I've been combing through the worksheets and interviews in turbotax to see where the problem is. I even deleted the estate tax filing and started over with the same K1 result: blank boxes. Shouldn't the K1s sh ou w the loss? Where am I going wrong? 

[Anonymous_ · Accepted solution]

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@Kristina25 wrote:

Shouldn't the K1s sh ou w the loss? Where am I going wrong? 

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In order to pass losses through to the beneficiaries, the return needs to be marked as "final".

Also, TurboTax can be somewhat fussy, so you need to allocate gains/losses to income (in the Investment Income section) and then make a distribution (even if there is a loss). You should then see the lines on your K-1s populate.

[Kristina25]

Ah, that makes sense. Not all beneficiaries took their share in 2019, so I didnt mark the return as final. Do we then carry forward the loss on the estate 2020 filing, and thus not include any K1 information on our 2019 personal returns? It would be on our 2020 returns? The estate will be closed in 2020.

[Anonymous_]

Yes, net losses (if any) can be distributed when the estate terminates and files its final return (2020).