Sale of inherited house

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Bob K. 21 years ago

My sibling and I inherited a house in Sept 2004 and sold it on Jan 2005. I signed the closing papers as personal representative of my father's estate. The will was probated and I distributed the proceeds from the sale to my sibling and myself. Now as personal rep I need to file a 1041 for the estate, if necessary. So my question is, should I file or not? This is the ONLY income from the estate in 2005 (other assets held in noninterest bearing account or were otherwise transferred to beneficiaries upon death). I have the 1099B form from the settlement company, so the IRS will presumably get this as well. The basis of the house would be adjusted to account for closing costs and real estate agent fees, so there will not be any capital gain from the sale. (A loss is not helpful either, because there is no other income to offset). So one could argue that the estate does not reach the 600$ needed to file a return. However, I would like to put this to rest, and avoid queries from the IRS down the road. So should I file a return (which would consist mainly of the Schedule D and estate info)? Thanks for any input, Bob K.

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David Woods, EA, ChFC, CLU 21 years ago

One would question why you're already getting a 1099 for a

2005 transaction.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Bob K 21 years ago

Thanks for the responses.

Sorry, I meant that this was the only income for the estate in 2004, not 2005. Also, regarding taking capital losses as Jo and Dave suggested, I was not thinking of that for several reasons.

-First, I was not sure a capital loss could be distributed to the estate beneficiaries, like income can. Can it?

-Second, I have to estimate the FMV of the house upon death (Sept 2003), compared to the selling price at settlement (Jan 04). The housing market in our area is genuinely insane, so it is difficult to accurately estimate the FMV for 4 months earlier (no appraisal was done then). So I have to make a guess (price increase of >15%/yr, so maybe increase of 5-6% by time of sale?). I still get some capital loss, but not too much. Would I do not want to bet my own 1040 on this type of loss.

-Third, I had read before that if an estate house was not rented out or a source of income (it was not), then no capital loss can be declared. If it were a for-profit item, then it could be. Is this wrong? Anyway, my question was really asking (assuming I don't want to try for a capital loss), is it worth filing a 1041 to show a small loss just to complete the estate and to avoid the IRS and the state asking questions down the road (when they see the 1099 but no return)?

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Arthur L. Rubin 21 years ago

An estate cannot have "personal use property", as it isn't a person. Hence the estate can at least claim a capital loss on property NOT used by a beneficiary, if not on any real property.

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Bob K 21 years ago

One final point on this issue of declaring a loss when selling a house in the estate of a parent (if anyone is still following this thread...). The IRS instructions for

2004 for 1041 (and various schedules, including D) says on page 34 (3rd column, first full paragraph): "If the losses from the sale or exchange of capital assets are more than the gains, all of the losses must be allocated to the estate or trust and none are allocated to the beneficiaries."

This seems to say that you cannot distribute a capital loss to the beneficiaries.

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D. Stussy 21 years ago

On an annual basis, no. However, see "excess deductions on termination." IRC

642(h)(1) specifically allows a capital loss carryover (carryforward) [and an NOL] to flow through that ONE TIME.

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Arthur L. Rubin 21 years ago

Without researching it, I seem to recall that capital losses from a FINAL estate return can be distributed to the beneficiaries. I quite agree that capital losses on a non-final estate tax return are retained as a tax attribute of the estate.

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Sale of inherited house

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