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Estate form 1041 form K-1

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Level 2

I prepared an Estate form 1041 with a small rental operating loss and a capital gain on the sale of the rental property.  There have been no distributions of cash yet to the beneficiaries as there are outstanding medical expenses to reconcile and there may be no cash once completed.  The estate attorney wants the estate to pay all taxes and have no taxable items pass to the beneficiaries.  

Isn’t the estate required to pass the capital gain and rental loss to the beneficiaries eventually on form K-1 ?  Wouldn't it be better for the beneficiaries to report their share of the cap gain and rental loss personally at lower tax rates than the estate pay higher taxes on the form 1041 ?  I'm want the optimal solution for my client the executrix. Thanks

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Level 15

You didn't say final in OP. In this case, you are correct. Capital gains, NOL, and excess deductions on termination get distributed on the K-1s. Estate can distribute money to the beneficiaries to pay the tax, or actually use the money to make tax payments on their behalf.


ex-AllStar

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Level 15

Capital gains are corpus. On a final year return they get distributed to the beneficiaries if there are any.

Except for a final year the concept is "income" distribution deduction. No distributions = no deduction. No income = no deduction.

What the attorney wants sound like it is the correct answer for this tax year.


ex-AllStar
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Level 2

Thank you sjrcpa for such a quick reply. 

This is the first and final return as there are no other estate affairs except for a medical bill that will be paid this month.  This is why I am confused as to what the attorney wants as I thought the estate was required to distribute both items to the beneficiaries and can't file a final return without distributions.

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Level 15

You didn't say final in OP. In this case, you are correct. Capital gains, NOL, and excess deductions on termination get distributed on the K-1s. Estate can distribute money to the beneficiaries to pay the tax, or actually use the money to make tax payments on their behalf.


ex-AllStar

View solution in original post

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Level 2

Thank you again.   I think the attorney wants the beneficiaries to avoid any tax and may be mixing up the former estate tax on assets where the estate would pay the taxes versus a final estate income tax return where the beneficiaries pay personally on their respective distributions of taxable items.  I will suggest they use estate funds to lessen the impact personally.