1041 Estate income tax return

[jshtax]

I have a 1041 to complete that has a rental property with income and expenses including depreciation. The estate has rental property plus an IRA, During the year the estate withdrew $110,000 from the IRA and distributed $80,000 to the beneficiary. The remaining $30,000 went to cover rental expenses and any excess was left in the bank account. How do you do this return? I am currently showing something like 75000 distribution to beneficiary from IRA 5000 from rental income and then I get directly apportioned deductions of 8500 plus some amount of net income to trust. Is this correct?

[Abby Normal]

Sounds correct to me but why on earth did they take the money out of the IRA instead of passing part of the IRA out to the beneficiary. Was there no beneficiary named on the IRA account?

[joanmcq]

Must have had the estate as beneficiary or no beneficiary on the IRA. One of the things we can do for our clients for added value is explain things like this. Either when we are delivering their return or as off season planning income.

[jshtax]

Son was named beneficiary until a few months before death of father when attorney suggested the estate be beneficiary to control the time (5 years)of distributions to the son.

 

So when are expenses held on estate return and passed to beneficiary upon final k1 of estate income tax return? 

[joanmcq]

If the son was still the beneficiary, he could have stretched the IRA over his lifetime. I guess the attorney didn't think the son could be trusted with the money? To get 5 years of payments, wouldn't the estate have to stay open for 5 years?

[jklcpa]

I agree with Joan, except that it mom had already started receiving RMDs, then the son's distributions would have been based on mom's age and not the son's.

 

On the surface it sounds like poor advice from the attorney because the value of that IRA was then included in the estate that might have incurred more in inheritance taxes, and also because the attorney was paid more if he is like most that I've seen that charge a % of the estate's value for handling the work.

[joanmcq]

If the son was still the beneficiary, he could have stretched the IRA over his lifetime. I guess the attorney didn't think the son could be trusted with the money? To get 5 years of payments, wouldn't the estate have to stay open for 5 years?

Don't agree with moms lifespan. I inherited my dads IRA and the RMDs are based on my age. Researched it well when he died. He was taking RMDs when he died.

[jklcpa]

Joan, you ARE correct.  If RMDs have started and IRA goes to a non-spouse individual, it is the longer of either the deceased owner's lifespan or the that of the beneficiary.  I stand corrected.   

[jshtax]

There were no RMD's at time of death. Money went into estate with direction of 1/5 value of estate be distributed at age 25 and the remaining each year until age 30 then the balance. Child turned 25 1st year of estate income tax return so money was distributed from IRA into estate then the estate distributed the money to son. 1st year they distributed $105,000 to estate to cover operating expenses of rental property and to distribute the $80,000 to son. Future problem is going to be partial distribution of rental property. I figured as long as son gets an 80K K1 then the rest is not that important. I have never done an estate income tax return with a rental property. The K1 has the following:

 

Box 5 Other portfolio income $79,386

Box 7 Net Rental Real Estate Income $614

Only part throwing me off is the amount is box 9  "directly apportioned deductions" A. Depreciation $8530.