Estate - Sale of Home

[Yardley CPA]

I normally do not prepare Estate Returns.  Client asked me to this year.  Her mother passed away in 2010.  Estate has been open since that time.  Estate has three equal beneficiaries...

• my client
• her brother #1
• her brother #2's wife (Brother #2 passed way two years ago). 

The only activity within the Estate is a home that was rented.  Last year the rental resulted in net rental income of $1,475.  The 1041 showed:

• Line 17: $1,475
• Line 21: $1,475
• Line 22: Taxable Income of -300

The Federal K-1's were all zeros.

During 2017 the rental resulted in a small loss of -$374.  It was sold on December 13.  Sale price was $300,000.  FMV at DOD was $274,000.  Improvements of about $7,000 were made.  The prior accountant never depreciated the property.  My questions:

• Is the sale of the rental handled on the 1041?
• If it is, can I simply show the sales price ($300,000) less the basis ($281,000) on 8949, allowing it to flow to Schedule D?  Since the rental was not depreciated, there is no sale of fixed asset tab.
• If this is correct, Page 1 of the 1041 shows taxable income of $18,700 ($19,000 net proceeds less $300 exemption). 
• I assume there would be no activity on the Federal K-1's since the estate would pay the tax due?
• This should close the Estate since there is no other activity.  If it does, do I file the 1041 as final?

Any advice / suggestions is greatly appreciated.  Thank you.

[Yardley CPA]

Allow me to clarify....the $1,475 Estate rental income was from 2016.

The sale of the Estate rental property resulted in a 1099S being sent to each beneficiary with Bx 2, Gross Proceeds showing $100,000, so obviously the beneficiary's need to report this on their personal returns.  I assume the Estate K-1's would include activity being reported to each beneficiary.

Thank you again.

[Abby Normal]

35 minutes ago, Yardley CPA said:

1099S being sent to each beneficiary

If the home was in the estate, one 1099-S should have been issued to the estate. Now, if the estate reports the sale, the income will be double reported to the bene's.

[Yardley CPA]

Thanks, Abby...Each beneficiary received their own 1099-S for 1/3 of the sale proceeds ($100,000 each).  In 2016,  the rental property was part of the Estate return and my client is indicating it never left the Estate?  Any suggestions on how to handle this?  Since each Beneficiary received the 1099-S?  Can I not show any activity on the 1041 and let each beneficiary handle it on their personal return?

[SaraEA]

The house must have been in the estate but was eventually re-titled to the beneficiaries as they are the ones who apparently owned it when it was sold (they are the ones who got the 1099S forms).  If the estate had no income in 2017 and no expenses, no 1041 is needed.  The depreciation "allowed or allowable" is the estate's problem but I wouldn't do anything about it at this point.  With depreciation, the estate would have had lower income and now the heirs will have higher income = a wash (except theirs is cap gains income, while the estate might have had ordinary gain/loss, but the IRS is getting paid one way or another).  The 2016 $300 loss could have passed through to the beneficiaries if the estate return was marked "final."  It might be too late now, but cap gains tax of 15% on each person's share of the loss = $15  (or $24 if they are high income) and isn't worth fretting over.

Handle the sale on the individual returns.  The heirs got the 1099S forms and the IRS computers will be looking for that $100k on their 1040s.  Your basis calcs are correct, but add any expenses of the sale (realtor, title transfer, attorney, etc.).  You can file a 1041 if the estate had expenses in 2017, e.g., the cost of transferring the title to the heirs as well as your tax prep fee for that return--yes, you can deduct it even if not yet paid.  Then you can mark it as final.  With three beneficiary packages, I would charge at least $750 for the 1041.  Whatever you charge, make sure it is divisible by three so each can pay the same amount.

[michaelmars]

when did the title change to the beneficiaries? They might have to amend their returns and claim the depreciation.  If you don't then the basis still has to be lowered by the depreciation that should have been taken.  Sounds like the estate accountant really messed up.  Was the house left to the beneficiaries or to a Trust for the benefit of the beneficiaries?  there are a lot of questions to be answered before you jump on this return.