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Client died Jan 2020.  Single. age 29. no will.

Employer paid regularly scheduled paycheck two days after date of death; then paid final for vacation time .  All was credited to deceased bank account.  All is reported on the W-2.

I know that the pay received after the date of death needs to go on the 1041. Can I just make the adjustment by subtracting it off his personal return or do I have to get the employer to correct the W-2.  I hate to have to go to the parents for this.  They have been through so much! 

He owned a condo.  So they had to go through the courts to be able to sell it.  The condo closed on 3/19/2021.  Is there any way I can do one 1041 to include the house sale?  I don't see how I can.  A fiscal year will still end on 12/31/2020.

Here is another twist:  When he purchased the condo in 2018, Grandma gave him the money ($512,000)  Then a few months later, for some unknown reason, they decided that he should get a mortgage and pay Grandma back about half of it.  The mortgage interest was never deductible because it was not a refinance.  There was no mortgage paid off.  SO my question here, could the interest now be investment interest for the 1041?  Further complication is that the mortgage was transferred to the mother's name while the condo was owned by the estate. So the 1098 has her social security number.

Thanks for your thoughts and suggestions.

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Sounds like you have  a plateful.  Starting off with the final paycheck, in a perfect world that would have been returned.  Then a new one would be issued for the net amount due to the estate or beneficiary. 

The gross would be reported as S.S. and MediCare wages; withholdings would be made accordingly.  

The final wages would not be included on line 1 of the W-2 and a 1099 misc would go to the estate / payee.

At this point, I agree it would be simpler to square up on the final 1040 by backing out the final gross pay as a deduction on Schedule 1 of 1040.

Then report the net on 1041. 

11 hours ago, Hahn1040 said:

So they had to go through the courts to be able to sell it.

Was the sale under the ein of the estate or SS of beni's?

 

11 hours ago, Hahn1040 said:

they decided that he should get a mortgage and pay Grandma back about half of it.  The mortgage interest was never

So it sounds like the transaction was a partial sale / partial gift.

I don't understand why the mortgage interest was not claimed (disregarding any limitation of itemizing).

11 hours ago, Hahn1040 said:

Further complication is that the mortgage was transferred to the mother's name while the condo was owned by the estate. So the 1098 has her social security number.

So was mom the beneficiary?

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thanks for your response:

The original purchase was all cash.  several months later he got a mortgage.  So it was not a refi.  There was no original mortgage

The sale of the house was under the estate EIN

Mom and dad were both named by the court as beneficiaries

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1 hour ago, Hahn1040 said:

The original purchase was all cash.  several months later he got a mortgage.  So it was not a refi.  There was no original mortgage

 

Your original post said a "few months"  later; so I assumed the 90 day window of Notice 88-74 was met.

If that were the case I would deduct as qualified residence interest on 1041.

13 hours ago, Hahn1040 said:

  Further complication is that the mortgage was transferred to the mother's name while the condo was owned by the estate. So the 1098 has her social security number.

The estate has legal ownership and obligation;  therefore entitled to the deduction for interest it paid.

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the home was purchased with the cash from Grandma.  The mortgage was obtained 4 months later.

In 2020 the sister bought a house with the help of cash from Grandma.  This time she got the mortgage at the purchase.  Also included Mom on the deed.  Then she immediately turned it into a rental.  Ugh!  Mom contributed nothing to the purchase or maintenance.

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Can he get EITC?  He died in Jan 2020, so his wages were only $5050... after subtracting the IRD wages $1,515. 

He was Single age 29 no children.

He did not "live" in the US 6 months of the year, but he lived in US all of the year he was alive!

There must be a place to look this up..... I am not finding it.

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7 minutes ago, Hahn1040 said:

Can he get EITC?  He died in Jan 2020, so his wages were only $5050... after subtracting the IRD wages $1,515.

He was Single age 29 no children.

He did not "live" in the US 6 months of the year, but he lived in US all of the year he was alive!

There must be a place to look this up..... I am not finding it.

Yes, if he meets all the requirements of claiming the EITC, the fact that he didn't live a full year doesn't matter. 

IRC sec 32(e) addresses this:
 

Quote

e)Taxable year must be full taxable year

Except in the case of a taxable year closed by reason of the death of the taxpayer, no credit shall be allowable under this section in the case of a taxable year covering a period of less than 12 months.

 

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Thank you so much!

Do I use the W-2 wages or the net after I subtract the IRD for the wages paid after death?

I really appreciate your help!

Just found out that the mother cashed all his savings bonds and the interest is reported under her social security number.

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2 hours ago, Hahn1040 said:

Do I use the W-2 wages or the net after I subtract the IRD for the wages paid after death?

I don't know offhand, and this is why it would be important to have that W-2 corrected. If I had to guess, I'd say that it would be net of the IRD because that is the correct amount that should have been reported on the W-2.   If you go the route of filing with the W-2 as is, are you going to also include form 4852, and do you have the last pay stub as proof that the last pay and vacation time was paid after the DOD?

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You know, this is somewhat similar to the other topic we currently have about the NC couple that's always filed MFJ and are in common-law marriage that is not recognized in the state.  I bet that if the parents of your deceased client walked into a chain tax prep outfit or preparer that didn't know the family, that this young man's final 1040 would be filed with the full W-2 and claim the mortgage interest too.  It wouldn't be correct, but it would never be questioned either.   I'm not suggesting anything, just a statement on how much that is wrong escapes scrutiny by preparers and the IRS.

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Oh I know!  We all have a millions stories like that.

Now I am trying to tell the mom (same family) that it was not a good idea for her to be on the deed for the daughter's house.  The daughter bought it to live in eventually but is posted overseas, so she is renting it.  UGH!  Mom has no financial interest but the house is in both names.

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22 hours ago, jklcpa said:

Yes, if he meets all the requirements of claiming the EITC, the fact that he didn't live a full year doesn't matter. 

IRC sec 32(e) addresses this:

I am not sure that is quite right.  There are two separate tax year rules here.

First is the greater than 1/2 year residency test specifically for a taxpayer without a  child under 32(c)(1)(A)(ii).

Secondly is the full year test for all taxpayers under 32(e) which you mentioned.

I have been under the impression that 32(e) does not apply to 32(c)(1)(A)(ii).  That appears to be the position taken by the IRS.

The wording of question 4 of step 4 of the EIC question worksheet refers to the entire calendar year.

 

 

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18 hours ago, Hahn1040 said:

The daughter bought it to live in eventually but is posted overseas, so she is renting it.

Does she know that will count as unqualified use if she eventually uses it has her personal residence and later claims section 121 exclusion?

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I am 99% sure that she has no concept that the depreciation will reduce her basis.... so I would say 110% that she has no idea of unqualified use!

I suspect that they believe that the rental will be a great tax write off.... her income is over $150,000 so we all know where the rental loss goes each year!  :)

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Latest developments :

I met with Grandma and mom yesterday.  When the deceased son's condo was sold March 2021, they gave Grandma back the $200,000 that she had given him in 2018 to purchase it.  Does that undo the 2018 gift? Or is it a new gift from the estate to Grandma.  Only the parents are beneficiaries.

then Grandma gave the granddaughter the $200,000 to pay down her mortgage  (2021 gift)

also found out that mom had transferred the balance of deceased son's investment account ($18,000) to daughter and she transferred his 529 ($47,000)  plan to daughter.  I know that transfer to a family member is fine for a 529 but does it trigger a gift tax return?  the investment account was joint with mom, so it was hers at his demise.  Mom is the owner of the 529 for both the children.

this family wins the prize for the most tax returns in a year!

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