1041 condo basis

[Pacun]

Rental condominium reported on 1041. Do I use step up basis for depreciation as soon as the person dies if the executor wants to use appraisal at the time of death?

[Terry D EA]

I am a little confused here. Why is the rental condiminium reported on form 1041? Is this part of the deceased's estate? Your question seems to suggest the person hasn't died yet. The step up in basis would occur to the one who inherits this property at the time the inheritance takes place. Also, the basis at that time would be the FMV and an apprasial would definitely be in order as that should reflect the FMV and is used to validate the step-up in basis. Now for the other part, if the one who inherits the property continues it as rental, then the depreciation would begin again at the time of the inheritance with the FMV as the starting point for determining the depreciable basis.

[Pacun]

The person is dead. The condo is part of his estate and reported on 1041. Based on what you said, whoever inherits it will use the step up basis but not the estate. Correct?

[Lion EA]

If the estate receives the property formerly owned by the deceased, doesn't the estate use the new stepped-up or -down basis? If the estate distributes the property to the beneficiaries, then they use the new basis.

[Pacun]

Husband died on January 30, 2008. Taxes were prepared jointly and rental income was reported on 1040. Client never mentioned that she was not on the condo's title, but in December 2008, client (wife) took the will to probate court and judge didn't object. The will stipulated that the condo was going to wife. Client talked to an attorney and told her that because the will stated that she was the owner of the condo, she didn't have to do anything else. The problem is that the mortgage company sent 1098 for 2009 with a title "to the estate of XXXX" I asked client why they didn't put her name on the 1098 and she said that the mortgage company could only make the change if she refinanced.

I believe I will have to prepare a 1041 for 2008 and maybe for 2009. Do I need a FEIN for the decedent's estate?

[michaelmars]

irregardless of the dumb bank, the condo is hers, no reason to open a 1041 estate etc. send the mortgage co the papers requred by your state but don't hesitate to take the deduction on her 1040

[Pacun]

irregardless of the dumb bank, the condo is hers, no reason to open a 1041 estate etc. send the mortgage co the papers requred by your state but don't hesitate to take the deduction on her 1040

Do you think I should amend 2008 joint return and report condo rental income on 1041 from January 30th (when husband died) to December when judge validated will? With depreciation, there was a loss from the rental condo.

[michaelmars]

Do you think I should amend 2008 joint return and report condo rental income on 1041 from January 30th (when husband died) to December when judge validated will? With depreciation, there was a loss from the rental condo.

no-it all belongs to wife, she leagaly took possession upon death and the rest is just paperwork. as for the mtge co, she probably spoke to general customer support who will not take people off of a mtge. she needs to contact their legal dept or they most likely have a dept to handle transfers.

[OldJack]

no-it all belongs to wife, she leagaly took possession upon death and the rest is just paperwork.

I totally disagree! For tax purposes the wife did not own the property until the date the probate judge ruled it was hers regardless of possession. Income and expenses before the judge ruled belongs on a 1041 tax return. That is why the mortgage company reported to the estate. Duh!!

And oh, step-up in basis is always on the estate (its only passed to a beneficiary) not when the probate judge rules, therefore, the 1041 should show a part year depreciation if depreciation was being taken before death.

[Pacun]

I totally disagree! For tax purposes the wife did not own the property until the date the probate judge ruled it was hers regardless of possession. Income and expenses before the judge ruled belongs on a 1041 tax return. That is why the mortgage company reported to the estate. Duh!!

And oh, step-up in basis is always on the estate (its only passed to a beneficiary) not when the probate judge rules, therefore, the 1041 should show a part year depreciation if depreciation was being taken before death.

Thank you both for responding and helping me sort out this situation.

A couple more questions and clarification:

Judge ordered in November 2008.

I guess there is no materially principle when it comes to the IRS. So, on joint return, Condo income should be reported for January and December. Feb-Nov should be reported on 1041. 1041 will report a loss, which will be transferred to the wife on the same year. This loss will be reported on Sch K1 and not on schedule E as originally filed.

How do I depreciate the condo for January and December on joint 1040 using ATX?

Do I need to get a FEIN for estate?

Should I amend 2008 joint return?

I agree that the mortgage company didn't know that the new owner was the wife after November 2008 and therefore 1098 was issued to the estate.

[OldJack]

From the date of death to the probate judge decision the estate calculates yearly depreciation on the step-up basis prorated for the number of months and deducted on form 1041. The beneficiary wife takes the remaining months of the year on her 1040 and continues the stepped-up depreciation in future years. A beneficiary always receives the step-up basis "from the estate" even if the estate is not required to file an estate tax return and show a step-up. A beneficiary never steps-up the tax basis. There is always an estate of a deceased even if it is zero. An estate exists until all assets are transferred to beneficiaries. This estate has income and expense so in order to file a 1041 you must get a FEIN. I would calculate any tax effect on the 2008 tax returns as filed and then consider if I would file amended forms or let a dead dog lie.

[michaelmars]

so if you open a 1041, now the wife got distributions from the "estate" prior to court approval. you are going to change a deed 2x 1- to estate then 1-wife. Between legal and accounting fees you are suggesting, she will look for another accountant. As for 754's Sometimes we don't make 754's until the estate is audited and an election at the time you can establish basis is fine.

AS FOR THE NASTY "DUH" COMMENT, YOU ASSUME THE MTGE CO IS RIGHT? THEN WHY DID THEY ISSUE THE 2009 1098 TO THE ESTATE AFTER THE JUDGE RULED IN 11/08? WELL DUHHHHHHHH THE 1098 APPEARS WRONG. That question was about getting "estate" off of the mtge without a refi. The bank many not accept the wife as a mortgagee and she may have to refi but that doesn't seem the case since they didn't call the note upon learning of the guys death.

Did you see the courts ruling? He might have ruled that title passed on date of death.

Sometimes you have to be practical [yes, sometimes you have to follow the letter of law]. There is no tax difference, whether you report 10 mos in a 1041. Substance over form sometimes makes sense - and saves a fortune in professional fees and paperwork hassles.

[OldJack]

The wife does not get a distribution from the estate prior to her obtaining legal title upon probate judge declaration. Any income tax on the 1041 that is owed prior to the probate judge date is paid by the estate not any beneficiary listed in a will. This is all because the "will" might be contested and wife may not receive the property in probate court. Your substance over form is not professional and could get you sued for malpractice if the wife did not receive title in probate. You can't distribute estate assets including income without probate passing title and that is when the "deed" is changed, not before in the case of probate assets. Even if the probate court was to say it passed title as of the date of death, that changes nothing with regards to the estate filing any estate income tax return that was due at the time and paying any tax owed. You really need to study the subject of estate and fiduciary taxes. Oh, what the hello has a 754 got to do with this and what is a 754 anyway?

[michaelmars]

this whole thread started because the poster asked about the 754 [incase you missed it when you "studied" estate and fiduciary taxes, that is what the irs calls the step-up in basis and the tax forms ask for a "754 election" to be included on the returns. if you really want to get nasty i can assume that you just skip those questions on 1065's?

there was no chance that someone could protest the will since the judge ruled in the same tax year and the wife received it in "probate" in the same tax year!

i agree with everything you said that there should be no distributions of an estate untill court aproved but since the wife [i am assuming] treated the condo as hers, she pocketed the rental income and used it as her own so she is in violation of numeroulse probate regulations and if she is the executrix she is in violation and subject to penalties if you follow the "letter of the law"

706's get audited here all the time but only over the amnount of minority interest deduciton and or step up claimed, never over the tracing of transfer of title. Especially not in NY.

taxes are irs but probate is local state rules.

You tried to advise the poster as to the law, I tried to advise in a practical manner, no reason for this thread to be getting so ugly and personal. I think we both have too much to do to keep this up. -QED

[OldJack]

this whole thread started because the poster asked about the 754 [incase you missed it when you "studied" estate and fiduciary taxes, that is what the irs calls the step-up in basis and the tax forms ask for a "754 election" to be included on the returns. if you really want to get nasty i can assume that you just skip those questions on 1065's?

There is nothing in any post of this thread except yours about a 754.

Well... you also need to study the tax code. Code sec. 754 is only about partnership tax basis and has nothing to do with this case as was posted with only the deceased on the title. See Code sec. 754 clip below.

The actual code sec for step-up basis to FMV of a desceased is code sec. 1014 (a)(1). See below. You really need to check your facts before replies and quit giving incorrect answers.

OldJack

------------------------------------------------------------------------

26 USC Sec. 754 01/08/2008

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter K - Partners and Partnerships

PART II - CONTRIBUTIONS, DISTRIBUTIONS, AND TRANSFERS

Subpart D - Provisions Common to Other Subparts

-HEAD-

Sec. 754. Manner of electing optional adjustment to basis of

partnership property

-STATUTE-

If a partnership files an election, in accordance with

regulations prescribed by the Secretary, the basis of partnership

property shall be adjusted, in the case of a distribution of

property, in the manner provided in section 734 and, in the case of

a transfer of a partnership interest, in the manner provided in

section 743. Such an election shall apply with respect to all

distributions of property by the partnership and to all transfers

of interests in the partnership during the taxable year with

respect to which such election was filed and all subsequent taxable

years. Such election may be revoked by the partnership, subject to

such limitations as may be provided by regulations prescribed by

the Secretary.

------------------------------------------------------------------------

26 USC Sec. 1014 01/08/2008

-EXPCITE-

TITLE 26 - INTERNAL REVENUE CODE

Subtitle A - Income Taxes

CHAPTER 1 - NORMAL TAXES AND SURTAXES

Subchapter O - Gain or Loss on Disposition of Property

PART II - BASIS RULES OF GENERAL APPLICATION

-HEAD-

Sec. 1014. Basis of property acquired from a decedent

-STATUTE-

(a) In general

Except as otherwise provided in this section, the basis of

property in the hands of a person acquiring the property from a

decedent or to whom the property passed from a decedent shall, if

not sold, exchanged, or otherwise disposed of before the decedent's

death by such person, be -

(1) the fair market value of the property at the date of the

decedent's death,..............................

[OldJack]

there was no chance that someone could protest the will since the judge ruled in the same tax year and the wife received it in "probate" in the same tax year!

That is irrelevant to the fact that the estate must file a 1041 tax return to report the income and expense before the probate court ruled.

You tried to advise the poster as to the law, I tried to advise in a practical manner, no reason for this thread to be getting so ugly and personal. I think we both have too much to do to keep this up. -QED

I did advise the poster as to the tax law as that is what you are also supposed to do. There is nothing practical about preparing tax returns incorrectly and calling it practical. The fact is you must not have know better or you prefer to prepare tax returns incorrectly.

no reason for this thread to be getting so ugly and personal. I think we both have too much to do to keep this up. -QED

There is nothing to keep up unless you have more incorrect statements you would like to make. With regards to ugly and personal.. I only corrected your mistakes. We all make mistakes, most of us admit our mistakes and don't get all bent out of shape about it.

.