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Sale of trust real property for appraised value to pay trust expenses.

A rental property listed in my mother's trust, but not deeded to the trust before death, was transferred into the trust by the court, via a pour over will in a summary probate proceeding.  I am trustee. I purchased the house, without objection, at the appraised value on the date of death, to have money to pay trust expenses. All other rental properties were specific devises, deeded directly to the beneficiaries.

I am filing form 1041, regarding rental income and expenses coming into the trust after death.

1. From what I understand, the transfer of the rental properties constituting the corpus/principle directly to the beneficiaries, is not taxable and does not constitute income and is not reportable on form 1041 or form K-1 or elsewhere?

2. As to the rental property transferred into the trust by the court and listed in the trust document, that is also trust principle/corpus? Am I correct in thinking that the proceeds from the sale at exactly the property value on the date of death, without gain or loss, does not constitute income or loss needing to be reported on form 1041 or beneficiaries' K-1's, but simply converted the real property principle to cash principle.  In other words, the sale proceeds retain their status as principle, there being no income or loss? And, being principle and not income or loss, is not reported on form 1041. I also note that there is no place on form 1041 to report the conversion of real property corpus to cash corpus--only to report income, had there been any gain above the corpus basis?

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9 Replies
M-MTax
Level 11

Sale of trust real property for appraised value to pay trust expenses.

1. The property itself is corpus. If sold there may be post death appreciation to be accounted for.

2. That property is also corpus and its basis is the FMV on the date of death. If the trust sells for more than the basis then the trust will have gain to report.

M-MTax
Level 11

Sale of trust real property for appraised value to pay trust expenses.

Principal distributions are not reported on the 1041, whether cash or property.

Sale of trust real property for appraised value to pay trust expenses.

1. From what I understand, the transfer of the rental properties constituting the corpus/principle directly to the beneficiaries, is not taxable and does not constitute income and is not reportable on form 1041 or form K-1 or elsewhere? 

 

The distribution of corpus is not taxable to the beneficiaries.  The Trustee may have discretion in designating all or part as an income distribution. This might be done to avoid taxes at the trust level which are generally higher thna taxes at the individual level.

 

2. As to the rental property transferred into the trust by the court and listed in the trust document, that is also trust principle/corpus? Am I correct in thinking that the proceeds from the sale at exactly the property value on the date of death, without gain or loss, does not constitute income or loss needing to be reported on form 1041 or beneficiaries' K-1's, but simply converted the real property principle to cash principle.  In other words, the sale proceeds retain their status as principle, there being no income or loss? And, being principle and not income or loss, is not reported on form 1041. I also note that there is no place on form 1041 to report the conversion of real property corpus to cash corpus--only to report income, had there been any gain above the corpus basis?

 

the sale needs to be reported on the 1041 and its likely there is actually a loss when selling expenses (closing costs) are taken into account. Property value on date of death would not take into these expenses such as title charges, transfer taxes that are chargeable to the Trust (seller). 

 

 

 

selling the house is no different than selling stock that the trust owned. 

 

 

 

 
 

Sale of trust real property for appraised value to pay trust expenses.

Thank you. There were settlement charges, so less than the appraised value that I paid was received by the trust. How and where on form 1041 do I report that? Also, there was a couple of thousand dollars loss to the trust overall, plus this capital loss. Does the overall loss get divided evenly and passed separately to the beneficiaries on a K-1? How do I enter that?

Much appreciated.

M-MTax
Level 11

Sale of trust real property for appraised value to pay trust expenses.

The loss can be distributed to the beneficiaries, pro rata, on the trust's final return (1041).

Sale of trust real property for appraised value to pay trust expenses.

I'm filing a fiscal year 1041, 3/28/23 to 3/27/24. This is the first, but not the last 1041. How/where do I enter the loss in TurboTax Business? The income/loss loss did not show up on beneficiary K-1's. This will add to the trust's losses. How do I get it to pass to the beneficiaries' K-1's? And I assume that, fiscal year ending in 2024, the K-1's will be for 2024? Assumably, beneficiaries have already paid 2023 taxes.

M-MTax
Level 11

Sale of trust real property for appraised value to pay trust expenses.

     Fiscal years need to end on the last day of a month.

     Enter the transaction/sale in Turbotax and it will compute the loss.

     The loss can't be passed through to the benes on the k-1s until the final return.

M-MTax
Level 11

Sale of trust real property for appraised value to pay trust expenses.

     If the fiscal year ends in 2024 then the benes will report that k-1 in 2024.

Sale of trust real property for appraised value to pay trust expenses.

Thank you for all of your advice!

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