Reporting and Passing Capital Loss to Beneficiaries of Estate

[brownize]

I'm filing a final (and only) estate return. Decedent's home, which was held in a Living Trust, was sold 2022 with a loss due to selling expenses. No one lived in the property after the death and it was sold quickly. The Trust EIN was listed on the 1099-s and the beneficiaries received the proceeds. 

I'm filling out 1041 and put the amount as a negative on line 4. That's the only entry for the estate.

On Schedule D (Form 1041) I entered amounts on lines 9, 18 & 19. My question is Part IV limiting to a $3000 loss. How to address this since it's a Final estate tax return and I need to to pass the entire loss to the 4 beneficiaries.

I did a K-1 (Form 1041) and entered on line 11, with a code D, the capital loss amount  for each beneficiary (listed as a positive number since it's a deduction, is that correct?). 

I'm using TT Deluxe, and I've since learned the Business program is needed. Is there a way to do this manually on the individual forms instead, and how do I enter the info on Schedule D (Form 1041) to show a greater than $3000 loss per beneficiary?

Do I as executor do the 8949, or do the beneficiaries? And would Part II "description of property" be "Inherited Real Estate"?  Anything else need to be done to show the loss?

Thanks much.

[Mike9241]

not really sure what you are doing. you need Turbotax business to do the 1041 for the estate. the living trust ceases when the grantor dies. you report the sale of the estate 1041 you also need a new EIN  - no overrides and also indicate it's final.  the k-1s for each beneficiary would indicate their share of unused capital losses distributed due to termination. then the beneficiaries enter the k-1 on their 1040s

[brownize]

Thanks Mike. The trust did get a new EIN upon death which is reported on the 1099-S for the home sale. 

I know this is a TT forum, wondering though if I can do just the estate return  separately on my own and complete each form needed and just use TT Deluxe for my personal 3 returns. Do I have to do a software program to get past the $3k cap loss limit?

I did check "FINAL return" on the 1041. Is it considered a Complex trust with just the one sale? 

On the K-1, I put each beneficiary's share of the loss on line 11 with Code D, is that correct?  

I do the estate 8949 as executor?

Ii appreciate the help.

[Anonymous_ · Accepted solution]

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@brownize wrote:

I do the estate 8949 as executor?

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You stated earlier that the decedent's home was in a trust and you were trying to prepare a 1041 for the sale of that home.

Does other property (assets) exist other than the decedent's home? 

You continue to vacillate between "trust" and "estate" and it is not clear if there is even a filing requirement for the estate or if there are any assets or income attributable to the estate.

See https://www.irs.gov/instructions/i1041#en_US_2022_publink1000285942

Beneficiaries receive K-1s if there are items of income, gain/loss, deductions, or credits they need to report on their tax returns as a result of the pass through from the estate or trust. They do not prepare the 8949 for the estate or trust.

I am certain Mike (and others, myself included) are ready and willing to assist you but, frankly, if you are not cognizant of the fundamentals (such as the difference between an estate and a trust or which party should prepare which form or schedule), then you really should seek guidance from a local professional (and note that none of the foregoing addresses any state issues that may exist or arise).

[brownize]

 All assets from the trust were distributed to the beneficiaries quickly and no 1099s came for the new trust EIN after the trust become irrevocable due to death.  

This is the final and only 1041 being filed. My goal is to pass the home sale loss ($60,000) to the beneficiaries, which is the only asset to report.

My questions are:

1. on Schedule D (Form 1041) Part IV, how do I address not having to limit the loss to $3000? Please give example. 

2. On 1041, do I put the loss as a negative on line 4? This is where I'm puzzled since Sch D is limiting to $3k. What other lines need to be filled on 1041 for this one asset to show it was distributed to beneficiaries?

3. On the K-1 for the beneficiaries, do I use Code D for box 11 to indicate the loss on the home sale?

I know it's easy to say I should consult a tax advisor, but I think I can do it, and do appreciate everyone's help.

[Anonymous_]

@brownize I have a threshold question and it is: Are you certain this trust actually has a $60,000 loss on the sale of the house? 

If so, you really need to start with Form 8949 and then follow the instructions.

[Anonymous_]

Also, make sure you are using Schedule D (Form 1041) as there is another Schedule D for Form 1040.

See https://www.irs.gov/pub/irs-pdf/f1041sd.pdf

Note that the $3,000 loss limitation is not applicable since this is the final return and you are distributing the loss to the beneficiaries.

You would use Line 11 (with a D code) on the K-1s.

[brownize]

Thanks again. Yes, I did Form 8949 Part II, checked box "E" and put on line 9 on Sch D (Form 1041). 

Still puzzled about limiting the loss to $3000 on Sch D Part IV, and what lines to fill on 1041.  

[brownize]

I received a 1099s for the home sale, are you saying, per your sample form, to check box F on 8949??

[Anonymous_]

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@brownize wrote:

I received a 1099s for the home sale, are you saying, per your sample form, to check box F on 8949??

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Yes, check Box F because you received a 1099-S, not a 1099-B (i.e. you did not receive a 1099-B).

[Anonymous_]

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@brownize wrote:

Yes, I did Form 8949 Part II, checked box "E" and put on line 9 on Sch D (Form 1041). 

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You checked the wrong box; check Box F and then enter figures on Line 10 of Schedule D.

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@brownize wrote:

Still puzzled about limiting the loss to $3000 on Sch D Part IV, and what lines to fill on 1041.  

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I explained the part about the Schedule D loss limitation; it does not apply to this trust.

Your 1041 is going to have almost no lines populated with meaningful figures (mostly zeroes) since you are only reporting a net capital loss that is being passed through to the beneficiaries.

I have noted that you did not answer the question in one of my previous posts concerning the size of the loss. You mentioned that the loss was mostly a result of selling expenses ($60,000?). You should make sure those expenses are, indeed, deductible (such as real estate commissions, etc.).

[brownize]

Thanks for your patience.

I did see your post and am aware: "Note that the $3,000 loss limitation is not applicable since this is the final return and you are distributing the loss to the beneficiaries.", that's why I still keep asking how I get past Schedule D Part IV having to enter $3000 to show the greater loss to put on 1041, line 4. (Instructions say to do the Cap Loss Carryover worksheet, however there won't be a carry over since it's all being passed to beneficiaries).

I'm still unclear WHICH line(s) on 1041 I enter the loss amount.  Yes, the sales commissions and selling costs were high!

[Anonymous_]

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@brownize wrote:

I'm still unclear WHICH line(s) on 1041 I enter the loss amount.  Yes, the sales commissions and selling costs were high!

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You are supposed to subtract the sales commissions from the gross sales price; it is not an expense that you deduct anywhere on the 1041.

[Anonymous_]

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@brownize wrote:

....how I get past Schedule D Part IV having to enter $3000 to show the greater loss to put on 1041, line 4...

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You do not have to be concerned with any carryover.

In fact, many tax programs will insert a -$3,000 (negative $3,000) on the 1041 which appears to be a carryover but it is actually not since the entire loss is being distributed to the beneficiaries on the final 1041.

[brownize]

Thanks again .... here's my big obstacle ....Turbo Tax Business (which handles the 1041)  is not supported for Mac, which I use, so I am manually entering numbers on all the forms and therefore was hoping for specific info on what to put where. I've used TT for 15 yrs for my personal taxes, and again this year, but this is a one-time estate return that I just need help doing  without software. So, while I do greatly appreciate your time and help,  I keep asking the same questions again because I need help with the specifics entries  🙂   Can't wait to get this done!

Where do I put the "entire loss being distributed to the beneficiaries on the final 1041", and the sale price & selling costs? 

Do I still put 3000 on Schedule D line 20? How does it translate to the other forms to show the higher actual loss amount?

I'm doing 1041, Schedule D for 1041, 8949, and K-1s 

I've exhausted all avenues except paying $600 to a CPA so if there's anyway you can help, I'd be so grateful. Frustrating time for me. Thank you!