I am working on a 1041 and I am confused on how to handle selling expenses of a house sold after death by the estate. It was sold shortly after death so there would have be no appreciation. According to the IRS, “Selling expenses (such as broker fees, survey fees, or transfer steps) are deductible if the sale is necessary in order to pay debts, expenses, administration or taxes, to preserve the estate, or to effect distribution.” The estate has sufficient assets to pay expenses, but would the selling expenses still be deductible since they affected distribution?
Also below is a sample settlement statement. Would the Sales price and Cost be $307,803.34 and the expenses I can deduct be the Brokers commission of $20,220? I can not find anything in the code or a pub that specifically says what I can do. Is there an IRC or pub that discusses this circumstance?
|Estimate final bill to City||400.00|
|Estimated final bill to utilities||875.00|
|Pro rata taxes||245.05|
|Title Charges Home owners policy||1,184.56|
|County Transfer Tax||5,397.00|
|Due to Seller||307,803.34|
All of the items on the settlement statement would be selling costs on Schedule D except for the utility bills (actual amounts once determined) and pro-rated real estate taxes. Those would be deducted on the 1041 itself. This assumes that the sale was necessary "to effect distribution." If there is just one beneficiary, conceivably IRS could argue that the property could be distributed in kind, but I have never heard of them taking time to make that argument.
So is the sales price and cost $307,803? None of the other items would be added to the basis? By effect distribution does that mean that since there were multiple heirs the house was sold so the asset could be distributed?
So is the sales price and cost $307,803?
No, the sales price and basis before selling costs are $337,000. The sales price should match the amount reported to IRS on the 1099-S.
None of the other items would be added to the basis?
Selling costs are added to basis.
By effect distribution does that mean that since there were multiple heirs the house was sold so the asset could be distributed?