Successor Trustee stated he paid all taxes and I don't need a K-1?

[PJhiker]

So, I have posted here before on this topic. My brother is the Successor Trustee and we are 50/50 beneficiaries. We have a very bad relationship. He has been stalling out completing a 1041/K-1 form for the Trust. We live in CA. so the tax deadline is extend due to storms. In any event the Trust was fairly simple. My father passed and we split his house estate sale and the remaining money he had in his accounts. He passed in August 2021 and we sold the house in March 2022 and we split the net income after the sale. As I understand it we pay the difference between the net income and the appraisal sale of the house upon my father's passing date which ends up roughly $5k. So, I thought we split the capital gains of $5k and each pay $2,500 and include splitting the deductions. is that correct?

There was no real capital gains interest on my father's account money so that is not relevant. In any event he tells me he paid federal and state taxes on the Trust and it basically is good. How can that be? How would I then report stuff on my taxes for this? He's trying to sabotage me in every way so does anyone have feedback. 

[VolvoGirl]

I'm in CA and the accountant paid the house sale taxes on the trust return so we didn't get a K-1.  Nothing to report on my personal return.  

[Rachel40]

I am an executor to a will and I went crazy trying to get a clear answer from several attorneys and tax experts regarding the need to file and/or sending the K-1 schedule to the heirs.

You do not need the K-1 schedule to form 1065 because it is not filed with your 2022 federal tax return. It is not filed with your state return either. The estate settlement to you is well below a million dollars, therefore, you will not be taxed on your inheritance.

https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf

[PJhiker]

Was it the same scenario? Were you a beneficiary of a Trust that was closed out? Are you saying the accountant paid on behalf of the Trustee the taxes and you had to report nothing to the IRS and the state?

[PJhiker]

Ok, I for sure appreciate your feedback. Are you in CA.? I get what you are saying. A trust is a little different I think? I am just wanting to ensure I am not going to get audited. the capital gains I think is only 5k, but ended up getting like $256,000 overall from the estate sale. It seems odd I would have to report absolutely nothing?

[Critter-3]

Ok ... you are getting the filing of an estate return form 706  and an estate  INCOME tax return form 1041 mixed up.  If the estate value was below the current rate then it is not needed to be filed.  However if the estate sold the home it was issued a 1099-S at closing so an income tax return must be filed even if the estate will pay the tax bill itself and not pass the tax bill onto the beneficiaries on a K-1.  If I were you I would insist on getting a copy of the estate return 1041 to make sure that it was done correctly.  

[PJhiker]

Interesting. What exactly is a 706 form and what do you mean my Estate INCOME tax mixup?  And, below what current rate? A 1099-S was issued and I am not sure exactly what you mean. I thought I had to have a K-1 form from the 1041. I'm assuming that is what he must have had to file and taken the tax burden to himself as the Successor Trustee?  Are you saying if he did that and filed the 1041 that would show and I should get that copy of the 1041 form he filed that shows he paid the entire federal and state taxes for the state on the capital gains and I not in need of align anything at all?

Someone else said I should file a 8082 form that explains my situation and if I have the details of the 1099-S form and the title of the house sale I would explain and input on this form?

[Critter-3]

PLEASE get tax help from a local professional since who can answer all your tax form questions. 

[Mike9241]

the executor/trustee  usually has discretion as to whether to report income at the  trust level and have the trust pay the taxes on it. then the remaining assets  - usually cash are distributed tax- free to the beneficiaries. the same person can decide to distribute the income (either pursuant to the trust document or as permitted by state law) to the beneficiaries. the trust reports the income but also reports it was distributed to the beneficiaries via k-1s. then the beneficiaries get more cash but report the income on their personal returns and thus they owe the taxes.

an estate gets a step-up in basis to Fair Market Value on date of death.  lets say the property was sold for $514 FMV was $509. taxable  gain on sale $5. trustee/executor decides the taxes will be paid at the trust level. taxes say $2 . the  $514 cash from sale less the $2 taxes leaves the estate with $512 split 50/50 that's $256 each. and there is nothing for you to report 

[PJhiker]

Ok, however in this case my brother, the Successor Trustee, sold the house and then after closing costs he split the money and paid me my half. That was in 2022. The house was appraised at time of my father's passing at $510,000 and it was sold at $551,000, but after losing costs and fees etc the net was $515,000 that we split, so as I understand it we each split that capital gains of $5,000 at $2,500 each. However he just emailed me and stated two amounts he paid for federal and state tax on the house sale and think he means he just paid all the capital gains taxes on that $5,000. Can he do that and does that mean I do not need to report anything at all? it seems weird I would not need to report anything or still report some kind of K-1 but other people seem to think I am ok too.

[Critter-3]

Yes ... he can do that which means there is nothing for you to do.  However you are the one who said you don't trust him but since you are not the trustee of the estate or trust then you are not responsible for anything.