1041 AND DNI

[TAXMAN]

I have an estate(not required to distribute income) with interest rec 7k and capital gain of 2k. Distributed 40k to heirs. The program is passing out the int to heirs(on K-1) and taxing the estate on the 2k. First can the estate retain the cg and owe no tax or does that cg also have to go to the heirs? The question page 2 ask "any other amounts paid out". I do not believe I can ignore the distribution. What do you think?

[grandmabee]

Is it a final return?  if not I believe the CG on taxed on the 1041.

[Sara EA]

You'll have to look at state law on this, but generally cap gains remain in the estate until the final year. The estate tax rate on $2k cap gains in zero percent, so the estate lucks out.  The distribution over and above the interest income is considered to come from corpus.  Put it on the return but there is no tax consequence to the beneficiaries. (They will owe tax on their share of the interest.)  Did the estate have any expenses (attorney, accountant, probate fees)?  This will reduce the interest distributed to them.

[TAXMAN]

my thoughts exactly thanks

[DANRVAN]

18 hours ago, TAXMAN said:

First can the estate retain the cg and owe no tax or does that cg also have to go to the heirs

 

16 hours ago, grandmabee said:

Is it a final return?  if not I believe the CG on taxed on the 1041.

That is true.

Assume you had capital gains after stepped up basis.

[TAXMAN]

Not the final and real estate around here going up faster than gas. Its nothing to get 5 to 10 k over asking price even with a solid appraisal. With an increase in our tax rate wait till they get that bill.

[DANRVAN]

4 hours ago, TAXMAN said:

real estate around here going up faster than gas.

So a 2032(a) election is out of the question.

If this is the initial return have you considered using accrual accounting, short tax year...etc.