I will try to be as brief as possible. Parents passed away in 2019. both houses sold in 2020. Monies from sale of houses were distributed to all living heirs or their kids per will. Houses sold at a loss at FMV. What line on Schedule K1 does the amount go on that each heir received. And is their a code or letter that goes along with that line.
Any help much appreciated.
ps. attorney that handled the estate did not issue any K1's as they did not know about money being distributed to heirs.
When a decedent’s residence becomes an asset of an estate, the tax treatment of the sale of the residence will depend whether the executor sells it during the course of the administration of the estate or whether the beneficiary sells it after receiving it.
The decedent’s residence obtains a “step-to” in tax cost to its fair market value on the decedent’s date of death. Any capital gain or loss will be measured from the stepped-to tax cost.
If the decedent’s estate plan provides for the distribution of the residence to a beneficiary or the executor distributes it to a beneficiary as a discretionary distribution, the beneficiary takes the residence at the stepped-to tax cost. If the beneficiary subsequently sells the residence without first converting it to business or investment use, any gain is treated as the beneficiary’s capital gain but any loss is not deductible by the beneficiary.
If instead the executor sells the residence during the period of the estate administration, the residence is treated for income tax purposes as a capital asset held for investment purpose. The gain or loss is treated as a capital gain or loss, which may be deductible on the estate’s fiduciary income tax return. This is the case even though the property was the decedent’s personal residence and even if it was not rented during the administration of the estate.
If this is the case the estate should be reporting capital loss on its final return which gets distributed pro-rata to the beneficiaries. the cash they get is irrelevant.
@jesnken1 wrote:
Houses sold at a loss at FMV. What line on Schedule K1 does the amount go on that each heir received. And is their a code or letter that goes along with that line.
You do not report distributions of corpus (principal) on your K-1s, only items of income, gain, credits, deductions, and loss (the latter two would be reported on a final return).
If the estate sold the property and had a loss, the pro rata share of that loss can be passed through to the beneficiaries on their K-1s provided the houses were not used for personal purposes (e.g., lived in by a beneficiary). The loss would be long-term and would appear on the K-1s on Line 11 with a D code.
Line 11 on Schedule K-1 shows a portion of the money I inherited but has Code C instead of Code D. Please help with this.
Code C is for a short-term loss carryover.
Are you using TurboTax Business? If so, how did you enter the transactions?
Entered the date of death, then entered the information from the 1099-s. Date of Closing, Amount of Sale and address.
between date of death and sale of house was 9 months total.
That will probably give you a short-term holding period. You should enter "inherited" for the date of acquisition.
One house sold in 2019 and the other in 2020 Using TTBusiness 2019 for initial 1041. All money was distributed in 2020 with the sale of 2nd house. Money sat in an account until both houses sold. then distributed to all beneficiaries. Should initial 1041 show the sale of first house with blank K-1's since no money was distributed and 1041 for 2020 show only 2nd house sold with distributions or show both houses sold on 2020 1041 and show total distribution on final k-1's. By the way Schedule k1-Line 11-Code C is for Long Term Capital Loss Carryover. Code D is Net Operation Loss Carryover - Regular Tax. So would the sale of first house be the NOL Carryover from 2019 into 2020 final return.
@jesnken1 wrote:
By the way Schedule k1-Line 11-Code C is for Long Term Capital Loss Carryover. Code D is Net Operation Loss Carryover
You are correct but with regard to the 2019 K-1 (1041). The IRS changed the form for 2020 so 11D is for Long Term Capital Loss Carryover.
Also @jesnken1, you need to report the transaction in the tax year in which it occurred.
Last question on this subject. 2019 1041 - Do I
1. Add the beneficiaries to this Initial return since nothing was distributed.
2. 2nd house and al monies distributed in 2020 . Final 1041 will be for 2020
3. What about the amount of sale of first house. Does that somehow get carried over from initial return.
For 2019?
You need to report the sale of the first house if it was disposed of in 2019.
You can add the beneficiaries, but you do not need to issue K-1s (or even generate them) if there were no distributions (deemed distributions or otherwise).
Since there was no distribution in 2019, the trust would be responsible to pay any tax due on capital gain from the sale of the house in 2019 (if there in fact was any gain).