The party in question received a 1099-S listing their 1/2 share of the sale of their deceased father's home in an estate sale. That 1/2 share was $10,000. The father died on 5-13-04. I'm having difficulty in determining the FMV of the home at the time of father's death, but in '07 it had a tax evaluation of $29,746.
I'm assuming this would be recorded on the 1040 Sch. D using 1/2 the basis which would be increased by 1/2 of the closing costs. At first glance, it appears there would be a loss on the sale and that loss would exceed ($3,000) so there would be long-term capital loss carry forward.
Or should there have been an estate K-1 and the loss recorded on Sch. E?
A real estate appraiser should be able to determine a value as of
5/13/04 (of course that costs money). Was the property still titled in dad's name, or the name of the estate, or was it retitled in the names of the heirs? This long after the death, there's normally no need for a Schedule K-1 unless there had been other reasons to keep the estate open and filing tax returns. remember that 2007 was the peak of the real estate bubble, so that value is probably too high.
I'm not sure that the loss on a home is deductible. The loss on a personal use home is not, the loss on a rental home is on form 4797 if I'm not mistaken, and the loss on an investment home should be deductible although I'm not sure how you qualify a home to be for investment purposes.
Like Tom Healy, I'm having difficulty sorting out the fact pattern.
It sounds like the property was not in the estate at time of sale (so many years, and the 1099 showing separate shares); but the term "estate sale" suggests the contrary. It also matters whether the property was used (or was intended to be used) by an heir as a primary residence.
See Pub 559, p. 16:
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(Sale of a decedent's residence). Depending on circumstances, you may not be able to take any loss on the sale. So long as the property was in the estate, you might be able to deduct administrative expenses from estate income.
Tom - are you saying that even if there is still undistributed property in the estate, the estate can be closed? (Or is having the home in the estate what you meant by "other reasons to keep the estate open"?)
States usually require an accounting to be filed when an estate is probated, which could establish the basis; I'm not sure if that includes all property or just probated property (e.g. estate tax filings include generally most property, including TOD, IRAs, etc.)
The gain or loss would be reported on Schedule D; the question is whether it's a 1041 (estate) Sched D, or a 1040 (individual) Sched D. That seems to depend on who owned the property when it was sold. If there was a loss to the estate (and if it was allowed), then the capital loss would get passed through on a K-1, but only with the final 1041 filing.
Undistributed property (whether real or other investment), or unresolved debt (the case with one estate I've been dealing with for several years) are the main reasons I can think of why an estate would need to be kept open longer than a couple of years. One example would be oil interests that have complex ownership issues around them. Anther reason might be litigation, either to settle claims against the estate, disputes between heirs, or with the IRS.
I don't know all the facts, but let me clear up some I do know. First, there is a letter from the Maine Revenue Serv. dated 10-29-09 which at the top says 'Estate Tax Closing Document - form 706ME.' That document says 'We have determined the following:
Gross value of the property taxable by Maine = $29,200.00 Adjusted credit for state death taxes = $0.00 Maine estate tax = $0.00
'These figures do not include any interest or penalties that may be charged.
'Please keep this document in your permanent records. You may need it to complete administration of the estate. Keep it with proof of payment(s) to show that you have met the...' - this appears to be boiler-plate.
The two brothers 'became owners of (the home) on Aug. 27, 2008' says one of the brothers. It's possible that this is because the property took this long to clear in probate court, but I don't know that for sure.
The 1099-S, says in box 1 Closing date - 10-23-2009 and box 2 says $10,000 with some real estate tax listed in box 5 as $240.30. This document lists the 'filers' name as that of a lawyer, ie. esquire and only one brother listed as the 'Transferor.'
Besides the question of FMV, I'm struggling with whether this should be reported on Sch. E and if Sch. D is used at all. Since no estate tax was paid or apparently assessed, the $10,000 would seem to be 1/2 of the sale of the home less some incidental closing costs. The area in which the home resides was a depressed area even back in 2004 and it's understandable that it hadn't sold for 5 years after the father's death.
Finally, I'm sure that the basis was very near or a bit more than 2 x $10,000, so I expect a loss would in the sale of the estate would be passed onto the brothers.
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