Final estate tax return

[ej416]

I am using a fiscal year to file the first and hopefully final estate tax return for my father in law.  He died in June 2020.  The only income was from the sale of his home in March 2021.  This sale resulted in a loss.  We are also distributing all proceeds from the sale to the beneficiaries in April 2021 to close the estate.   The only deductions are legal fees that occurred in 2020 and 2021, mortgage interest and property taxes that were paid in 2021.  

Do I have to file a 2020 estate tax return and then wait until next year to file again to report the sale of the home OR since I am using a fiscal year, can I report the sale of the home and file a final return now, along with K-1s for the 2021 distributions?

[Anonymous_]

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@ej416 wrote:

.....since I am using a fiscal year, can I report the sale of the home and file a final return now, along with K-1s for the 2021 distributions?

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Since this is the estate's initial return, you can select a fiscal year that, for example, begins on the date of death in June of 2020 and ends on May 31, 2021. 

You can therefore include the sale in March of 2021 (and distribution in April) on this initial, and final, return.

[ej416]

I have a follow up question.  When I viewed the K-1s, it says that the income was distributed in 2020 when it actually was distributed in 2021.  Is this a glitch with TurboTax or is this correct given the fiscal year final estate tax filing?

[Anonymous_]

Did you select a fiscal year in the About Your Trust or Estate section?

If so, did you select the proper ending (and closing) date? I believe in your case that would be April.

Also, check your K-1s (and 1041) to ensure that the ending date is April 30, 2021.

[vickynbrian]

I have a question about this as well.  I have a similar situation.  My mom passed away Feb 28, 2021 and I have chosen to do her 1041 on a fiscal year.  I was hoping to make this her initial and her final estate return.  Does the fiscal year have to begin with her date of death?  The assets in the estate were distributed to me as the sole beneficiary on February 8, 2022, but I can't put February in as the ending month because it sees it as a short year starting and ending in February.  Am I stuck  making this her initial return and having to  do a final return next year?  

[JamesG1]

Distribution eight days earlier and you could have made the return the initial and final tax return.  I think you will end up filing two tax returns.

It is not uncommon for an estate or trust to have a short tax year when they file the final tax return for an entity.  Typically, the estate calendar year starts on the day of the estate owner’s death and ends on December 31 of the same year. 

The executor, however, can file an election to choose a fiscal year, which means the tax year ends on the last day of the month before the one-year anniversary of death. The executor then has up to 12 months to file the income tax return. 

The estate tax return is generally due four months after the close of the tax year.

[Anonymous_]

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@vickynbrian wrote:

Am I stuck  making this her initial return and having to  do a final return next year?  

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No, you are not stuck having to prepare and file two tax returns (1041). You can file an initial and final return based on a fiscal year.

The estate's fiscal year will begin on February 28, 2021 and end on January 31, 2022.

The key to this is you will make a 663(b) election for the estate. With a 663(b) election, a distribution made within 65 days of the close of the estate's tax year can be treated as if it were made during the preceding tax year.

As a result, the distribution you made on February 8, 2022 would be considered to have been made during the fiscal year you elected on the estate's 1041.

@vickynbrian 

[vickynbrian]

Thank you!  I have another question and it could change everything.  My Mom has a living revocable trust with her as the Grantor and her, my dad and myself as co-trustees.  My dad passed away in 2019.  From what I have read, a living revocable trust is a Grantor type trust and therefore you don’t report income on the 1041.  When my mom passed away, we obtained an Estate Tax payer id# and the money in the trust was moved to the Estate account,  then it was transferred to my own trust account.  

I have already completed her final return in TT and I am working on the Estate.  Before I realized I needed an Estate return., I completed my tax return claiming the income from the Estate, but I realize that may need to change.  None have been filed yet.  

I am trying to figure out who pays the tax on the Dividends earned in the Estate account and whether or not I need the 1041.   I am filing extensions for both my mom’s returns and ours and  I have a estate tax accountant that is going to help me after April 18th, but I will need to send in the tax liability by the 18th, but I can’t figure out who claims the income and pays the tax liability.  Any help?

[Anonymous_]

@vickynbrian 

You need to consult with your tax accountant for this entire matter, but if the estate received the income then the estate will have income tax liability. You, as executor, should receive a tax reporting statement for the dividends received which should dictate how they are reported.

Note the exceptions to paying estimated tax.

https://www.irs.gov/instructions/i1041#en_US_2021_publink1000285990