Estate Income Tax Deductions

Discussion in 'Tax' started by John, Oct 18, 2003.

  1. John

    John Guest

    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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    John, Oct 18, 2003
    #1
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  2. John

    Herb Smith Guest

    (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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    << The Charter and the Guidelines for submitting >>
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    Herb Smith, Oct 20, 2003
    #2
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