1041 not sure if I need to do it twice or even at all

[Tonka858]

My Dad past oct of 2018, My brother and I through the trust got a direct inheritance of 2 properties.

The people I use for taxes said I must do a 1041 at a cost of $2000 which seemed high but I agreed.

now this year they want me to do it again. Since he past in OCT but we had to wait 120 days before the trustee could file the parent child form.They say it has to be done twice.which seems crazy that I have to pay them 4 grand in returns for 4 months of rent.

Can I not just report the rental income with out doing this $2000

return again?

[tagteam]

Was the 120 day wait period for notification of beneficiaries per state law? 

Otherwise, why has the property not been conveyed out of the trust to you and your brother? Are either you or your brother the trustee (or are you co-trustees)? Are there any other beneficiaries? 

If the property remained in the trust during the 2019 tax year and received rental income, then a 1041 needs to be filed; you cannot report that income directly on your individual income tax return unless the trust is a grantor trust (highly unlikely based upon the (sparse) facts presented).

[Tonka858]

Yes 120 days by California law. My stepmom was the trustee and the 2 houses where given to me and my brother it bypassed the trust and went directly to us.

My dad turned the income over to me about 5 months prior when he could no longer take care of it.

the property legally became ours in March of 2019.

So must we file the 1041 for both years?

what should this cost? is $2000 normal?

Thanks for your reply appreciate it.

[tagteam]

If the trust received income from the rentals for 2019, then the trust is required to file a 1041.

California is going to be more expensive, I presume that they are also filing a CA fiduciary return (CA 541), and you have two rental properties in the trust, but $2,000 still seems to be on the high side, although not totally outrageous.

[Tonka858]

This is what I'm confused about. I asked the attorney that did the trust she said.

"the houses where an inheritance and was distributed directly to you from your father’s revocable trust."

So even though the rental income was never in a trust account, As I took over the income many months prior to

his passing, Could we of not just done 1 return after the 120 days and not 1 return per year?

why can i not just claim the income with out doing a 1041 again? we got them in 2018 just had to wait out the 120 days.

[tagteam]

If that is the case, then why do the tax preparation people to which you referred insist on preparing another 1041 (and presumably CA fiduciary return)?

If the properties were distributed to you and your brother, then they should have been re-titled in both of your names (most likely as tenants in common). 

[Tonka858]

Yes property is now in our names, 

This is why I have posted here, what they are saying was not making  any sense.

So we can skip the 1041 and just put it as regular income?

Thanks again for your help 

[tagteam]

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@Tonka858 wrote:

Yes property is now in our names, 

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Yes, but was the property in your names all of last year (2019)? If the property were being held in the trust during 2019, then the trust would most likely have received rental income prior to the property being conveyed to you and your brother.

[Tonka858]

No was only in our name from March 2019 on, there never was a trust set up for the rent, My dad just had it going in my account for 5 months prior to him passing. It never went to a "Trust" account after he passed.

[Tonka858]

so should of they waited to do the return this year instead ?

crazy have to do it twice for a 120 window

[tagteam · Accepted solution]

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@Tonka858 wrote:

No was only in our name from March 2019 on, there never was a trust set up for the rent, My dad just had it going in my account for 5 months prior to him passing. It never went to a "Trust" account after he passed.

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It actually does not make any difference whether the income went into an account specifically set up for the trust. If the trust owned the property, then the rental income belonged to the trust and a return needed to be filed (the trust became irrevocable upon the death of your father and an EIN should have been obtained).

[Tonka858]

So a return for both years is needed?

[tagteam]

Yes, if the trust received rental income for 2018 and 2019.

[Tonka858]

Thank you so much for clearing everything up.

[SpringForward99]

When did you dad die? All rents before his death go on his 1040 return bc the trust containing the properties was Revocable until he passed. Rental income, up until his death, goes to dad's 1040 return despite his giving it to you. One files a 1041 in the year he died, and not before! Plus 1041 is filed every year until the estate is fully distributed. Dad could give anyone $15k gift tax free/year in both 2018 & 2019, if he was alive part of the year. After he died, once properties were given to you, rents thereafter are yours. Am not an attorney, I don't know when property goes to you, theoretically, once he passed, it was yours, but title didn't transfer until later. I would think all the rents would be distributed to you, as a beneficiary, through the trust, once he died,  and you would get a K-1 form and pay taxes on the rental income on your 1040. Tax rates are ridiculously high on trusts, so if distributed to you, your tax should be lower. A 1041 is filed showing the distribution of rents to you. If tax preparer did 1041 in 2018, and he passed in 2019, that would be incorrect. In year he died, in year 20XX, all income up until he died goes on his 1040, all income after that is reported on 1041 every year until the estate is settled. If needed, it's not too late to amend 2018, and get any overpayments returned. Sorry to learn of your dad's passing.