Hello!

We are in a bit of a bind and are hoping someone can give us a quick bit of advice and point us in the right direction.

My fiance's mother passed away in May of 2009. She lived off of the interest of several CD's that she had for several years. The CD's were all Payable on Death to my fiance, so they were not included as part of the estate. There was also a will, fiance was the sole heir. However, we hired an estate attorney (not knowing anything about the process), who established an estate with a Federal EIN.

The assets that went through the probate process were a house and a car.

Sold the car in July of 2009 for $1,000 to a 3rd party. Sold the house in October of 2009 for a fair market value to a 3rd party.

So! Our understanding at this point is that:

1) The estate had no "income", since the sale of a car and a house are not income.

2) However, at least with the house, there are tax forms that need to be filed to determine if there was any capital gain, etc. (there won't be).

At this point, our understanding is that the sale of the house and the car are a part of the estate. On the other hand, our understanding is that the estate also had no income after it was formed, which means we would not normally be required to file a Form 1041.

There was never a separate estate checking account or anything, the proceeds from the sale of both the house and the car just went straight to my fiance. She also paid out of pocket for the estate attorney (which cost about $3,000), money to clean and fix up the house which was sorely need of repair before being sold, etc.

Aside from my fiance's normal tax return, and the final 1040 tax return for the deceased, what other tax forms are we going to need to file, and where? Can we just file the forms for the house on my fiance's tax return, or the deceased's 1040, or must we file a 1041 for the estate, reporting no income, and then include the proper forms for the sale of the house?

Thanks so much for any help anyone out there can offer. We don't mind paying a tax professional to handle this if it's out of our league, but we're feeling a bit burned by the estate attorney who we feel charged us an arm and a leg and still left us with no real direction or guidance regarding what to do to get this whole process finalized.

asked 28 Feb '10, 15:36

R.D.'s gravatar image

R.D.
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edited 08 Sep '10, 03:41

stephenweinstein's gravatar image

stephenweins...
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I am going through THE EXACT same situation currently with my mother in law's estate. Only difference is that she did have some post death income on some probate assets (cd's, brokerage account). Since an estate was set up with a federal tax id number, my advice to you would be to file the 1041 to report the sale of the house and car. You should have received a 1099 B from the closing on the house. If that 1099 B listed the Estate federal ID number, than you have to report the transaction on the Form 1041. If however, the deceased's social security number is on that 1099 B, then you'll have to file another 1040.

Either way, my understanding from our estate attorney, is that the Estate needs to be closed and a final tax return submitted.

Hope this helps.

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answered 28 Feb '10, 19:34

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RMFcpa
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Additionally, does the sale of the car count as income, or are the sale of the car and the house both not income since they were already "paid for" with taxed dollars?

I found a random site somewhere else that claimed that while normally the sale of a house is not income, in the special case of selling a house of a deceased person's estate, it is considered income to the person or persons receiving whatever equity was int he house. Any truth to this that you're aware of?

(02 Mar '10, 14:24) R.D.

Assuming your fiancee was not on the title of the home, she inherits the home with the basis equivalent to the FMV at date of death or she can choose an alternative value within 6 months.

(04 Mar '10, 13:24) RMFcpa

In our situation, our estate attorney said that since we have sold the home within 6 months of death, we can use the sales price as our basis valuation. Thus, we will have no gain. As for the car....my husband and I purchased it from the estate for the amount it would be sold for off a dealer lot. We went to Edmunds.com and researched the value of that car model/year to determine it's value. Again, for the estate, the car was sold for it's current fair market value, therefore, no gain or loss.

(04 Mar '10, 13:24) RMFcpa

As for your question about the special case of selling a house where equity is considered income....unless the beneficiary is named on the title as an owner prior to the death, then determining proper basis would include the original date of purchase and equity. So if a person purchased a home in 1950 for $40,000 and added their grown child to the title in 2006 and died in 2010, that grown child's basis in the home would be the $40,000. If the home is then sold for $100,000, there would be a $60,000 gain. You pay taxes on the gain, not the equity.

(04 Mar '10, 13:24) RMFcpa

If however, it was inherited, no name on the title, then that grown child's basis would be the FMV at date of death and it is automatically considered a long term holding due to inheritance.

(04 Mar '10, 13:24) RMFcpa

Great, thanks so much for your help! That all makes sense :).

(04 Mar '10, 14:54) R.D.
showing 5 of 6 show all

If he filed for an EIN for an estate, a return MUST be filed to close this out. This is where you should start, with him/her for filing of the EIN and Estate. I wish you the best, but start first to close out this EIN.

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answered 28 Feb '10, 18:24

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SandySea
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Thanks for the advice. We will definitely file a 1041 for the estate, then, and just report "0" income.

(02 Mar '10, 14:21) R.D.

My aunt passed away Nov 08, I'm the executor , her taxes for 08 were filed. In 2009 I sold her co-op and paid off any bill due and disbursed the balance to the beneficiaries, do I need to file a tax return for 2009 ? there was no income for 2009.

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answered 14 Mar '10, 20:11

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joanne
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Joanne, you might want to ask this in a separate question if this current question doesn't provide the answer you're looking for. Simply click the "Ask Question" button in the upper right of this page. :-)

(15 Mar '10, 06:46) TaxQueries ♦♦

RD - file the 1041 to capture the sale of the house. it should be a loss, which will pass on the K-1 to your fiance. Don't forget the charity deduction of the house contents! Contact me off list if you need help with the returns.

Joanne - same answer. The estate, which owned the property, sold it. The 1099-S will be in the estate name and have the EIN (not taxpayer's SSN). A quick 1041 will clean up your responsibilities as executor.

Brian Lehrhoff EA blehrhof@cybernex.net

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answered 15 Mar '10, 13:14

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blehrhof EA ...
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Asked: 28 Feb '10, 15:36

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Last updated: 08 Sep '10, 03:41