Taxes for Estate

[vze56v6x]

My mom passed in 2021.

She was retired, elderly and owned a 2 family home.

Normally I would file her taxes because she had a small amount of rental income.

Since she passed in May of 2021 I wanted to understand how to file her taxes.

I did create an estate in my moms name but since alot of the assets were also in my name only a small amount actually fell into the estate, ie HOUSE.

Do I file her taxes as normal and declare her as having passed?

Do I file some special form for the Estate or is that handled in 2022 when the estate is settled?

We sold her home but in February of 2022 so that would be reported in next years taxes I assume, correct?

I am the executor of the estate and the sole inheritor of all assets.

Is there anything I am missing tax wise for 2021?

[Anonymous_]

I am sorry for your loss.

Since you are the personal representative (executor), you might want to read through the IRS publication at the link below.

https://www.irs.gov/publications/p559#en_US_2021_publink100099488

Note that, first, you will file a final return (1040) for your mother that would cover the period from January 1, 2021 until the date she passed in May.

[Anonymous_]

For the estate income tax return (Form 1041), you can select a fiscal year that starts when you mother passed in May and ends not more than twelve months later (e.g., your fiscal year end could be April 30, 2021 which would encompass the sale of the house in February).

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000285977

[fanfare]

@vze56v6x 

you should not have to file any estate tax return at all,

Since you are the heir, the sale of the house goes on your 2022 tax return.

It is an inherited asset which is always treated as Long Term.

The basis is the home value on the date of death.

Most if not all of the closing costs are deductible.

[DaveF1006]

To clarify, when was the estate created? Was the rental income generated when the house was part of the estate or when it was still in your mom's name? 

If the rental income occurred before the creation of the estate in 2021, then it will be reported on your mom's return for 2021. You will report that she is deceased and you will report all income she earned in 2021, in her name. Your house sale will be reported in 2022. Here is an excellent Turbo Tax article that addresses how to report a tax return on behalf of a deceased taxpayer.

Here is a IRS article that explains how to file a tax return for an estate. The reason why i put this here is that there are two kinds of taxes owed by an estate: One on the transfer of assets from the decedent to their beneficiaries and heirs (the estate tax), and another on income generated by assets of the decedent’s estate (the income tax). The estate tax is reported on IRS Form 706 and you may need to file this for 2021 if there was a transfer of assets that took place. You may have done this already but if not, here is a copy of the form. Turbo Tax currently does not support his form but you may download this form and complete and send it in as a stand-alone tax return.

Turbo Tax does support form 1041 though, the income tax side of it.  We have a Turbo Tax Business Product that reports Trust and Estate tax returns. I don't know if you need to file it this year but you will need it for tax year 2022 for the sale of the house and other purposes.

[dmertz]

@fanfare , the sale of the house goes on the estate income tax return because, presumably, the house was never distributed from the estate.  It was instead sold by the estate.  Any capital gain or loss relative to the date-of-death value passes through to the estate beneficiaries on Schedule K-1 (Form 1041) as long-term capital gain or loss.

[Anonymous_]

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@DaveF1006 wrote:

To clarify, when was the estate created? 

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No need for clarification as the estate is created at the moment death occurs.

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@DaveF1006 wrote:

Your house sale will be reported in 2022. 

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The sale of the house can be reported on a fiscal year 1041; one that began in 2021 and ends in 2022 if there are no other transactions beyond April 30, 2022.

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@DaveF1006 wrote:

The estate tax is reported on IRS Form 706 and you may need to file this for 2021 if there was a transfer of assets that took place. 

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Form 706 is for estates the value of which exceeds $11,700,000 (for 2021).

[fanfare]

@dmertz 

What does the Will say?

If the Will leaves the home to the son, doesn't that exclude the home from the estate?

[Anonymous_]

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@fanfare wrote:

If the Will leaves the home to the son, doesn't that exclude the home from the estate?

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No. There are certain instances in some states where title to real property vests immediately (in the heirs or devisees), but an estate is created upon the death of an individual. 

Generally, you can bypass the estate with a trust or some form of joint tenancy with rights of survivorship (or something like a named beneficiary in a retirement account or life insurance policy), but that is about it.

[fanfare]

"There are certain instances in some states where title to real property vests immediately (in the heirs or devisees),"

What instances, for example?

I thought this was true in all instances.

If the FMV is the selling price, the estate had a loss which is less than $600.

So again an estate tax return is not required, except perhaps to pass out that loss on a K-1.

[Anonymous_]

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@fanfare wrote:

What instances, for example?

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One example would be homestead property (certain states). A specific example would be if the children and/or spouse of the decedent were using the property as their primary residence, then title would vest immediately upon death.

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@fanfare wrote:

If the FMV is the selling price, the estate had a loss which is less than $600.

So again an estate tax return is not required, except perhaps to pass out that loss on a K-1.

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No, with the property being held by the estate (presumably with the executor having applied for an EIN), the basis would have to be established to show that there was less than a $600 gain (or a loss).

If a 1099-S is issued in the name of the estate and with its EIN, the only piece of information the IRS has would be the gross proceeds. Without a return, the IRS would have no way of knowing whether there was a gain or a loss and, if so, to what extent.

Further, unless the property were being held for personal use by the estate (e.g., an heir, family member, et al, was living there), the beneficiaries could deduct a loss from their income tax returns (a loss that would have to be passed through via a K-1).

[vze56v6x]

The rental income didn’t occur at a specific time. It was there before and after she died.

i am the executor and the sole heir so do I need to do an estate income tax or can I just report it all as part of my 2022 taxes.

[vze56v6x]

I am the only beneficiary and when we sold the house the proceeds went directly to me NOT to the estate

The  value of the home at the time of death and at the time of sale is the same and the home was owned for over 40 years so we were told by attorney there is no capital gain.

rhe only thing that was in the estate was $800 as all other accounts were joint with me. The home and one account were the estate but the funds from the sale never were in the estate account as attorney said it was perfectly fine to distribute to the beneficiary/executor.

so having said this would I still need to do an estate return or can I claim it all on my personal taxes.

[vze56v6x]

This is exactly what I thought but all the different replies are confusing