My father sold his vacation home (not a rental, just for family use) to my nephew in September 2019 via an installment note with quarterly payments. Purchase price was fair market value. There is about a $60K capital gain.
My father died in November and I am co-executor of his estate. He received one payment while alive, in October. The estate received the January payment. The installment agreement required full payoff of the loan within 120 days of my father's death, and the payoff was made to the estate accordingly this month (February).
My research of IRS publications 537 and 559 make it clear that my father could have elected to report all of the capital gain in 2019, even though it was an installment. He wouldn't have, of course -- the installment sale was intended to spread out the capital gain tax over the years of the loan. But his death changes all that.
There will be significant differences between his final 1040 and the 1041 (fiduciary income tax return) we will file for the estate in both income and tax brackets. My preliminary math suggests it would be to the estate's benefit tax-wise to include all of the gain on the 1040, rather than most of it (minus that portion included in the October payment) on the 1041.
The question is: Can the estate make the election to report it all on the 1040 the same as he could have? IRS 537 and 559 don't specifically address the situation where the seller dies after he completes an installment sale but before he files the first 1040, where such an election would be made.
For those answering the question, please cite sections of IRS publications or rules, the tax code, case law, etc., that helps definitively answer the question.
Thanks!
Jim
