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Estate Income Tax Deductions

 
 
John
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      10-18-2003, 06:53 AM
I am preparing an estate income tax return for a deceased
relative, and I have not been able to find much guidance on
deductable expenses for the administration of the estate.
Specifically, which of the following would be deductions:

Real estate commission on the sale of house Costs to keep
empty house maintained while selling. Cost of cleaning house
in prep of sale Utilities to keep house from freezing in
winter

If anyone can help, thanks

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Herb Smith
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      10-19-2003, 11:55 PM
(E-Mail Removed) (John) wrote:

> I am preparing an estate income tax return for a deceased
> relative, and I have not been able to find much guidance on
> deductable expenses for the administration of the estate.
> Specifically, which of the following would be deductions:
>
> Real estate commission on the sale of house Costs to keep
> empty house maintained while selling. Cost of cleaning house
> in prep of sale Utilities to keep house from freezing in
> winter


The following information, from www.1041accountant.com, may
be of help to you in making this choice.

Generally deductions allowed to individuals are also allowed
on fiduciary returns. [IRC 641]

• Interest (Line 10):
– Investment interest (limited to net investment income):
Calculate on Form 4952.
– Qualified Residence Interest: Interest on a mortgage
secured by a home owned by an estate or trust is deductible
if: (1) An estate or trust beneficiary uses the home as a
principal or second residence, and (2) that beneficiary has
a present or residual interest in the estate or trust.

• Taxes (Line 11):
– State and local income and real property taxes that
are not deducted on Schedules C, E, or F.
– GST (Generation-Skipping Transfer) tax on trust
income distributions.

• Administrative Expenses (Lines 12, 14, 15a, 15b):
Expenses are fully deductible on Form 1041 if they would not have been
incurred if the property were not held by the estate or trust:
– Trustee and personal representative estate or trust fees (Line
12).
– Attorney and accountant fees for estate or trust
administration (Line 14).
– Form 1041 estate or trust tax return preparation
(Line 14).
– Fiduciary bonds, court fees, court-required
appraisal fees, and other required expenses of the estate or
trust (Line 15a).

Expenses that would have been incurred in the absence of an
estate or trust are miscellaneous itemized deductions
subject to 2% AGI Limitation (Line 15b).
– Legal fees and other costs for collection of estate
or trust income,
– Investment expenses and advise, including expenses
for managing, conserving, and maintaining estate or trust
property.
– Tax return preparation and advice. Fees for
preparing the decedent’s final Form 1040 and other
returns.

Note: Most estate or trust administrative expenses are
deductible on Form 706 or Form 1041 but not on both. If
estate or trust expenses are deducted on Form 1041, attach
two copies of a statement signed by the personal
representative listing the expenses and stating, "These
expenses have not been claimed as deductions for federal
estate tax purposes. All rights to claim such deductions are
waived." The waiver is irrevocable. It is required even if
the estate is not required for file Form 706. This rule
against double deduction does not apply to expenses in
respect of the decedent. Such expenses can be deducted on
both Form 706 and Form 1041. Similarly, claims against the
estate for amounts owed by the decedent at the time of death
are generally deductible on both returns.

• Estate Tax Paid on IRD (Income in Respect of a
Decedent) (Line 19):
If income in respect of a decedent is taxable to an estate
or trust, the deduction for estate tax paid on that IRD is
also taken on Form 1041 in the year the IRD is reported.

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