Estate tax return

[Joacchim]

My wife is the fiduciary for her decedent mom's estate, which holds a couple of houses in the US and has 4 beneficiaries, the 4 children.  One of those houses was sold in 2021 and there were long term capital gains (she died in 2019).  I filed (and mailed to the IRS) K-1 forms for each beneficiary indicating each of their share of the gain, and also mailed each beneficiary a copy of their K-1.  I did not file a 1041 for the estate - yet.  Do I need to file a 2021 tax return (1041) for the estate?  

When I did our family's taxes (using TurboTax Deluxe) I reported that I received a K-1 and the amount was included on my Schedule D.  I did not attached it to my return, however.  I did attach it to the state return, though.

Obviously I'm confused.  We probably should've hired a tax guy but we didn't realize the house sale would affect our taxes, nor did we understand all the ramifications of being the fiduciary of the estate.  Should I be purchasing TurboTax Business to do an estate return?  Seems pricey for the circumstances of the estate.  Thanks for any help!

[ThomasM125]

You should file the estate tax return to report the sale of the property and to submit a copy of the K-1 schedules to the IRS. Also, you are required to file an estate tax return if the estate had more than $600 in income during the year. You would need TurboTax business to prepare the estate tax return.

[Anonymous_ · Accepted solution]

If the estate sold a house that it owned, it is almost a certainty that an estate income tax return (1041) would be required to be filed.

There is also some missing information in your post, specifically the use to which the house (or houses) was being put (e.g., held for investment, rental use, personal use, or some combination thereof).

Your best course of action would be to consult with a local tax professional.

See https://taxexperts.naea.org/listing/service/estates-gifts-trusts

You can try TurboTax Business since that product is capable of preparing a return for an estate, Form 1041, but you would be best advised to seek professional guidance. Legally, your wife has a fiduciary duty to the beneficiaries and that typically requires employing professionals if the fiduciary does not have the requisite level of knowledge or experience to handle a matter.

[Joacchim]

Took your advice and talked to someone local we found from your link to NAEA.org.  1st thing we found out was that since my mother in law lived in the house for 2 of the 5 years before it was sold, no cap gains tax are due.  Applicable section of tax code is section 121, fyi.  She is going to prepare the estate tax return for us.

Thanks much for your advice.  I should've asked sooner.

[Anonymous_]

---

@Joacchim wrote:

Took your advice and talked to someone local we found from your link to NAEA.org.  1st thing we found out was that since my mother in law lived in the house for 2 of the 5 years before it was sold, no cap gains tax are due.  Applicable section of tax code is section 121, fyi. 

---

Whoops, wrong local professional. Try someone else.

Section 121 would definitely not apply unless your mother-in-law sold the house while she was alive.

When she died, the house became part of her estate and, as such, her estate received a basis that was stepped-up to the property's fair market value on the date of her date, per Section 1014.

[Joacchim]

This article https://acrobat.adobe.com/link/track?uri=urn:aaid:scds:US:a0980f6d-9ea3-35ff-bafc-a85ef2722e6c says on page 6 of the pdf "Effective for decedents dying after December 31, 2009,38 the $250,000 exclusion is extended to estates, heirs and certain revocable trusts. Under new Section 121(d)(9), an estate or heir can exclude $250,000 of gain if the decedent used the property as his or her principal residence for two or more years during the five-year period prior to the sale."  

[Anonymous_]

Re https://acrobat.adobe.com/link/track?uri=urn:aaid:scds:US:a0980f6d-9ea3-35ff-bafc-a85ef2722e6c

We should always read the footnotes.

38. Id. at 5901 (providing that provisions of Section 121(d)(9) will not apply to estates or decedents dying after December 31, 2010).

[Anonymous_]

@Joacchim 

See https://www.govinfo.gov/content/pkg/PLAW-107publ16/pdf/PLAW-107publ16.pdf

Note the sunset provision in Section 901.