Tax liability on estate - who pays what

[clcarte2]

I was made the executor of my father's estate.  It was small, he had about 4.5 acres of land.  I sold the land almost immediately (within 4 months after getting the letter of testamentary and sold the land for a fair price).  The estate is pretty small (approximate value of $160K) and after paying out the property taxes, medical expenses, etc. I divided up the final amount among me and the other 2 inheritors.  As I was able to sell it in such a short time, how can I determine the real fair market value on the day he died?  I believe we got a fair market value amount for the sale, and I didn't get anything appraised as I knew my cousin had the money to cover the agreed upon cost of the property, which included a mobile home.  Now that there is no money in the estate, how is it determined what is owed?  And who would pay it?  Would the inheritors have to pay their own share of the taxes when they file their personal income taxes?  Would there be no tax liability because of the quick sale turnaround?  Who would I need to talk to in order to get all of my financial ducks in a row?  Thank you!

[Anonymous_]

Did the estate sell the property? 

If so, you probably need to file a 1041 (but it does not appear as if there will be any tax liability).

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000285926

You might want to seek guidance from a local tax professional.

https://taxexperts.naea.org/listing/service/estates-gifts-trusts

[clcarte2]

Yes, the property was sold by the estate.  Nothing like fair market value or income tax would apply to each beneficiary for their inheritance if there was a difference in the FMV at the time of date of death of the decedent and the purchase price?

[Anonymous_ · Accepted solution]

See https://www.irs.gov/publications/p559#en_US_2021_publink100099689

You should most likely be filing a 1041 if the property were sold in the name of the estate. 

If a beneficiary (or other individual) did not use the house for personal purposes, then there is the potential for a loss to be recognized (which can be passed through to the beneficiaries) if the basis was greater than the sales price.

[Mike9241]

sorry for your loss. the tax basis would be the value on the date of death. really don't know the length of time between that occurrence and the sale.  if the interval is relatively short and you sold at fair value, I would use the gross sales price as the date of death value.  there could be an issue because the sale was between you as executor and your cousin (what the IRS would call a related party sale) but only if the IRS challenges the value.

as part of filing the 1041, since the money was distributed, a k-1 would go to each beneficiary reporting their share of the gain or loss so taxes if any on the sale is their responsibility.

[Anonymous_]

A cousin is outside the purview of Section 267, but it could still be an issue if the cousin was a beneficiary of the estate.