I'm helping my son prepare the first 1041 for an irrevocable trust that came into existence upon the death of the grantor, a Florida resident. It is a complex trust. This is not my area of expertise. The issue I am wrestling with is the allocation of certain expenses and whether they should be allocated to principal or allocated to income and be deducted as a Misc. Itemized deduction. The decedent's residence is now investment property. It is up for sale and has not been rented. The house is in a community that has an association that takes care of the common area. There are various assessments and special assessments for maintenance and repairs to the common area and clubhouse. There were repairs to the house. There are utility expenses for the house. There is also a large vacant home insurance expense. I have allocated all these expenses to trust income and deducted them as being ordinary and necessary expenses paid for the management, conservation, or maintenance of property held for the production of income. This is the IRC Sec. 212 definition. As an aside for you Californians: Does anyone know if a trust return needs to be filed in CA because the trustee is a CA resident? The trust was formed in Florida for a FL resident who died in FL. Comments please.
P.S. I did tell him to hire a professional to handle this.