BulldogTom Posted January 26, 2020 Report Share Posted January 26, 2020 Pretty sure I know the answer but just double checking. In the final year of an estate, property taxes that are flowed to the beneficiary are subject to SALT limitations under the new tax law. Am I correct? Thanks Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted January 27, 2020 Report Share Posted January 27, 2020 Without knowing all of the details and please don't think this is stupid, but I am assuming this estate apparently has income that is derived from some type of sale subject to sales tax or possibly an estate with rental property wanting to deduct property taxes. Without doing extensive research, I was only able to find references to individual taxes. if my memory serves correctly, I think the estate would be subject to the same limitations. Not sure though. I also remember the controversy over rental property with the property tax being a business expense and all the crap associated with determining if real estate rental activities were considered a business. So, it will be interesting to see what others say here. Quote Link to comment Share on other sites More sharing options...
Sara EA Posted January 27, 2020 Report Share Posted January 27, 2020 Property taxes are not passed through separately. The estate will calculate its income and deductions and pass the net income through to the beneficiaries. If it held rental property, those property taxes are deducted from rental income on Sch E. If it sold the decedent's home and paid property taxes at the closing, those taxes go on the estate's 1041 subject to the $10k limitation. Please tell us specifically what property taxes the estate paid. 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 27, 2020 Author Report Share Posted January 27, 2020 It is a long and winding story. My client was estranged from his sister many years ago. She did not include him in her will when she passed, and specifically dis-inherited him. Everything went to her other brother with the stipulation that he must live 6 months after her passing or everything goes to charity. She dies, her brother inherits and starts liquidating the estate. 7 months later, brother dies unexpectedly. My client is now administrator of 2 estates as he is his brother's sole heir. And yes, he gets his sister's stuff as well. The court appoints my client as successor trustee for sister's estate. As he starts looking into it, he discovers that the property taxes were not paid on the sister's home that the brother sold when he was executor. So my client paid the property tax (even though it sounds like it should have been cleared in escrow - I know! but it is what was paid). This is the Bay Area, so he is already SALT capped. Can I pass this through to him and if so, can he deduct them on his personal return. I am not crying for my client. His sister's home and his brother's home were both in the bay area and paid off. If he does not get any deduction, he is going to be OK. Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted January 28, 2020 Report Share Posted January 28, 2020 On 1/25/2020 at 6:50 PM, BulldogTom said: In the final year of an estate, property taxes that are flowed to the beneficiary are subject to SALT limitations under the new tax law. Am I correct? Assume you are referring to EDoTT, excess distributions on trust termination. There are several barriers. At the 1041 level, the property taxes would be limited by SALT whether or not passed to beni's. On the beneficiary side, the deduction was formerly allowed as misc itemized deduction which has been suspended by TCJA. There was an IRS notice in 2018 seeking comments on the effect of TCJA on EDoTT deduction by beni's and possible future regulation (which I have not seen notice of). So as I understand it, there is no deduction on the individual beneficiary's return at this point. Quote Link to comment Share on other sites More sharing options...
DANRVAN Posted January 28, 2020 Report Share Posted January 28, 2020 7 hours ago, DANRVAN said: EDoTT, excess Meant to say excess deductions on trust termination. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted January 28, 2020 Author Report Share Posted January 28, 2020 7 hours ago, DANRVAN said: Assume you are referring to EDoTT, On the beneficiary side, the deduction was formerly allowed as misc itemized deduction which has been suspended by TCJA. That was what I was afraid of. Whether SALT caps or TCJA, I had a feeling this was not going to be deductible. Thanks DANRVAN. Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 8, 2020 Author Report Share Posted March 8, 2020 Following up, I am now preparing the 1040 for the beneficiary. I imported the K-1s from the 1041. The K-1 has the amounts in box 11 coded A. ATX took those amount and put them on the 1040 Schedule A line 16. Allowed in full, no limitations. I know that the amounts coming from the K-1 are for property taxes paid by the estate to the county on the property held by the estate until the disposition. I don't think they should lose their character when they pass through to the beneficiary, but I might be wrong (won't be the first time the code allowed something I thought it should not). On the other hand, they are not over the SALT limit if the return was for an individual. My feeling is I should place these amounts on Line 5b of the Schedule A, but I am hesitant to override the software. I also want to believe they can come through to the beneficiary without limitation. I would appreciate some input for the proper way to put these items on the clients tax return. Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 8, 2020 Author Report Share Posted March 8, 2020 11 minutes ago, BulldogTom said: On the other hand, they are not over the SALT limit if the return was for an individual. I think I said that badly. The amounts of property taxes would have been allowed in full on the 1041 (not SALT Limited) had there been income to offset. When added to the schedule A property taxes of the beneficiary on their 1040 return, they would not be allowed because of the SALT Caps. Thanks Tom Modesto, CA Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted March 8, 2020 Report Share Posted March 8, 2020 Excess Deductions of an Estate An excess deduction resulting from an estate's total deductions being greater than its gross income, in the previous tax year, is a miscellaneous itemized deduction and beneficiaries can no longer deduct it. https://www.irs.gov/publications/p529#en_US_2019_publink10004383 Quote Link to comment Share on other sites More sharing options...
Randall Posted March 8, 2020 Report Share Posted March 8, 2020 There was mention on another forum that the IRS was going to make a decision about moving these deductions to the other miscellaneous category. Even if they do, many will still be stopped out by the higher standard deduction. Quote Link to comment Share on other sites More sharing options...
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