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Can sale of rental property be reported on 1041 if income and depreciation has been reported on 1040?

Love2Cruise
Level 3

Client has been renting her disabled daughters condo (which she purchased) and reporting on Schedule E with her personal 1040. However, once she sold the condo in January, turns out the property is actually  in a Special Needs Trust. The sale should be reported on 1041 since the proceeds were placed in the trust account. Is it ok to just dispose the property on the asset sheet of the clients 1040 without including any of the sales information? 

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8 Replies 8
BobKamman
Level 14

A Special Needs Trust can be a grantor trust.  That seems to be how she was treating it, so probably someone advised her of that when it was set up. What makes you think it goes on a 1041?  Probably results in more tax  

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Love2Cruise
Level 3

It definitely results in more tax on the 1041.This is my first experience with a SNT. In my research of how to handle, most of what I'm finding is to file the 1041 because a TIN was obtained for it. The IRS 1041 instructions seems to indicate the same. Of course it's the IRS and most times they lean in favor of more tax. Your thoughts?

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BobKamman
Level 14

I can usually track down EIN requests to a bank teller with a GED.  How long has this trust existed?  Are the people who wrote it still around?  Are they somewhat competent?  Sometimes they used to be bank tellers. 

This is a good article to start with:

https://www.naela.org/NewsJournalOnline/News_Articles/2019/JanFebMar2019/TaxSNT.aspx

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Love2Cruise
Level 3

Lol! I wish it was a bank teller. But this one was prepared by an attorney, and they're still around. The trust has been in effect since 2005.

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Just-Lisa-Now-
Level 15
Level 15
so the house sold in the EIN of the trust?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Love2Cruise
Level 3

Yep! Client says she didn't realize the Trust had an EIN, even though it's printed on the 1099S. 

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BobKamman
Level 14

And when you ask her who gave the escrow company the EIN, she says  . . .

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Love2Cruise
Level 3

Hmmm....good question! Didn't even think to ask her that, but certainly going to. I suspicion she'll blame it on the attorney!

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