The Sale of the house which was formerly the personal residence is for tax purposes considered the sale of investment property.  If the Estate sold the property, it is reported on the Form 1041.  An exception exists if the house first passed through inheritance to the beneficiary in which case the sale is reported on the beneficiary's Form 1040. Please follow along in the attachment for entering, best in forms mode within the TurboTax Business program, how to report the sale of the house.  As was mentioned, the "reverse mortgage" is nothing more than an additional lien or loan on the house and the payoff amount is first deducted from the proceeds of the sale and as such should not be a component of the reported net proceeds of the sale.  NOTE: Sometimes a real estate agent erroneously calculates the amount that may be shown on a Form 1099-S so do verify that the Form 1099-S is correct.   ATTACHMENT:  See the  PDF Attachment "Sale of Decedent's House - simplified to follow along"   NOTE: this attachment is an Adobe PDF that must be downloaded to view Start on the Form 1041 screen at "Your Income" and within the "Investment Income" Select "Home Sales" in that section but before you do, you may wish to click the "Learn More" link for a thorough explanation of why this sale is a Long-Term Capital Sale and may in fact, unlike the sale of a personal residence owned by a living person, generate a Loss instead of a Gain, when the sale occurs at a price and proceeds less than the house was worth on the date of death (example, prices fall over a several month period) . Click the Homes Sales Note on Home Sale" that this case does NOT include where the house was rented out after the Estate received the house into Estate Assets.  If the house was rented out after the death of the owner, the process will require additional steps not shown in this answer. Answer Yes to Did you sell a home for this Trust? Note the information you will need before proceeding-  dates, selling price from the HUD Settlement statement and total cost including: Gross proceeds, and net proceeds after HUD Settlement charges including real estate agency fee, other taxes or fees paid to settle, legal costs, BUT not pre-paid real estate taxes which are reported elsewhere as Taxes Paid. Dates of acquisition by Estate (the screen is wrong as it is not the date "you bought") Also include as costs any known improvements that were made before death or after Estate received - such as costs related to making ready to sell Enter the location - address of the house Enter date of sale closing, the financial data of selling price and all costs related to making the sale, note that this is where the mortgage payoff may be entered if the Gross Proceeds were reported because the payoff reduces the Net Proceeds.  Note the other typical costs of selling the house. This example does not include the case where you or the beneficiary occupied/used the house as a personal residence after the house passed to the Estate.  See Note. This example is based on answering No to "Was this home used for personal purposes?" Enter the "Basis" of Home - What was it worth on the date of death? - Note that the legal costs of filing a probate or land court filing relating to transferring the title from the Decedent to the Estate, if it was necessary, is an addition to the Basis, not a cost of selling the house. In this case, show, there is a small Gain on the sale.   For a more detailed example, not with the values shown in the first example, where this second example shows the gain being passed through to the beneficiary on the Schedule K-1.  Decedent Home sole by Estate Form 1041 ... View more

In 2020 for 2019 Tax Year, it was very obvious that the IRS processing of Form 1041 and any subsequent ancillary action or filings, such as Form 4506-T Transcript request, has been terribly slow and often erroneous.  I would suggest that if your filing of the terminal (Final) Form 1041 for your parent was then not followed by any received income in the name of the deceased parent, then it is unlikely that the explanation letter from the IRS that should have been accompanying the Voucher deals with any current taxable income.  Does the Voucher refer to the already filed 2019 (presumably) Form 1041?  Note that the IRS still has not processed a considerable number of filed Forms 1040 as well.   For a better and more direct answer, please provide the relevant text of the IRS letter accompanying the Voucher request. Scruffy Curmudgeon---PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - NOT AN INTUIT EMPLOYEE ... View more