Estate Income Tax

[terramcky]

I am the administrator of an estate that has been opened since 2020. The estate has had 2 "potential" income events. 1) the sale of real estate - the proceeds were less than $200K.  Does the capital gain $250K exclusion apply to estate income tax the same as individual tax? 2) Estate creditor issued 2023 1099-C -  the tax form was  mailed to an incorrect address and I received it this year 2024. Can I request the IRS to waive the late fee and interest due to this issue? I would need to file a 2023 1041 tax form, correct?

Are estate income taxes required to be paid even with estate funds being distributed to minor beneficiaries? 

[M-MTax]

Sec 121 doesn't apply in your case. There is no home sale exclusion and the basis is the FMV on the date of death.

[M-MTax]

You need to report the 1099-C as income to the estate for 2023. Doubtful that the IRS would be willing to waive any late fees, penalties or interest.

[M-MTax]

Are estate income taxes required to be paid even with estate funds being distributed to minor beneficiaries? 

Makes no difference whether the benes are minors. If the estate has income of $600 it has to file a return and pay any tax due or pass the income through to the benes so they pay it.

[terramcky]

I read the administrator can elect to use the FMV of the property 6 months after date of death.  Is this correct? If so, would I just need a real estate agent to print comparable homes at that time?  This would be 2020 when the real estate market saw significant appreciation.  The home sold in 2022. Can I deduct expenses incurred by the estate prior to 2022? e.g. bond premiums, bank fees, etc.

Is there a list of allowable deductions for estates I can refer to? I've seen funeral expenses, appraisal expenses, attorney fees, etc. but I was hoping to obtain an official list for a credible resource.

Can I use Turbo Tax Business to file the estate income tax return for 2022 and 2023? The 1041 tax form leaves the ending date open for the ending year. Do I need to file for each year separately or can I file a 2022 tax form with an ending date of December 31, 2023. 

[M-MTax]

I read the administrator can elect to use the FMV of the property 6 months after date of death.  Is this correct?

NO. That is NOT correct for estate income tax.

The 6 months election can only be made for the purpose of estate tax......as in the estate is worth a LOT......and the election must reduce the size of the estate and the estate tax due on form 706.

[M-MTax]

Do I need to file for each year separately or can I file a 2022 tax form with an ending date of December 31, 2023. 

You are going to have to file each year separately. A fiscal year return cannot span 2 years and also can't end on December 31st.

[M-MTax]

I've seen funeral expenses, appraisal expenses, attorney fees, etc. but I was hoping to obtain an official list for a credible resource.

You can take a look at the instructions for form 1041....see below. You cannot deduct funeral expenses on a 1041 under any circumstances but can deduct administrative expenses like appraisal fees and also atty fees.

1041 Instr 

[terramcky]

Is the tax return considered a fiscal year because the date of death happened after January 1? Would the fiscal begin date be date of death and end on the anniversary date?

[M-MTax]

You, as executor and preparer of the return, can choose the tax year, fiscal or calendar year when you file the first 1041. A fiscal year can be any 12 month period that does NOT end on December 31st.

[terramcky]

ok, I'm wondering why you referenced a fiscal year return?  A tax year could be the same as calendar year, correct? 

[M-MTax]

The estate needs to file a return if it has more than $600 in income for its tax year. So, you can start the year at any point where there is a transaction or income to report.

[M-MTax]

A tax year could be the same as calendar year, correct?

"tax year" is generic......it can refer to either a fiscal year or a calendar year.

[terramcky]

ok, that's what I thought. I am going with calendar year, therefore, I will have the ending date be December 31st for the same year.

Can I deduct expenses from 2020 and 2021 on the 2022 tax return if they were incurred in relation to the sale or executing the estate?

[M-MTax]

You're better off adding those expenses to the basis of the asset sold.