decedents credit card debt paid by his estate

[Linda M]

Decedent had a 1099-R. This was the only thing in his estate. Executor/Beneficiary paid decedent's outstanding credit card bills. Can the estate deduct this expense on the 1041 so it's not included in taxable income to the beneficiary on the K-1.

Thank you for the help!

Linda M

[sjrcpa · Accepted solution]

There must have been money in  the estate with which to pay the bill.

What was the credit card bill for? Look at the details and see if any of those are tax deductible items. Otherwise, debts of the decedent are not deductible on Form 1041.

[BobKamman]

Taxable income to beneficiary shouldn't be more than amount actually distributed to him.  If the 1099-R was for $50,000 and the creditors got $20,000, the beneficiary should have received $30,000 and should pay tax on it.  The estate may have $20,000 taxable income and should have set aside enough money to pay that tax before making final distribution.  

[Linda M]

Thank you for your reply.

The only money in the estate was $38,000 from the 1099-R. The executor paid $6,000 of the decedents credit card bills, leaving $32,000 in the estate account. I entered $38,000 on line 8 of the 1041 (Other Income) which was the gross amount. Should I have entered $32,000 instead?

[BobKamman]

What did you enter on Line 10, Schedule B, Page 2 of Form 1041 (I'm looking at 2020 version)?

[Linda M]

I entered the gross amount ($38,000) of the 1099-R on line 8 (Other Income)

After reading your reply, I entered $32,000 as the amount distributed on Schedule B line 10 (2019 Version), which clears up the $6,000 issue. The estate is taxed on that, while only $32,000 goes on the beneficiary K-1