Estate expenses on sale of a house
Bernard fruchtman
of $250,000. It's sold by estate 3 months later for
$265,000. Expenses of sale are $17,000 (Broker's commission,
etc.). Are expenses deductible on Form 706 or 1041? Is there
a choice at the election of the Executor as to where they
can be deducted?
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David Woods EA MST
> of $250,000. It's sold by estate 3 months later for
> $265,000. Expenses of sale are $17,000 (Broker's commission,
> etc.). Are expenses deductible on Form 706 or 1041? Is there
> a choice at the election of the Executor as to where they
> can be deducted?
You missed the boat completely. Costs of sale are deducted from
the proceeds of the sale. It should go on the 1041 but not as a
separate cost like you suggest.
David M. Woods, EA, MST, ChFC
(617) 723-2422
Boston, MA
www.rytercpa.com
dwo...@rytercpa.com
This advice does not constitute a client relationship.
If you are not a client, you are on your own.
John H. Fisher
> House that's part of an estate has F.M.V. on date of death
> of $250,000. It's sold by estate 3 months later for
> $265,000. Expenses of sale are $17,000 (Broker's commission,
> etc.). Are expenses deductible on Form 706 or 1041? Is there
> a choice at the election of the Executor as to where they
> can be deducted?
The assets in the estate are subject to estate taxes. Upon sale
of assets, the gain/loss is passed on to the beneficiaries and
reported to them on their individual K-1's (Form 1041). The
estate doesn't have a choice for reporting what was in the estate
at the time of death (or alternate date). The sale of the assets
comes after the fact. Costs of settling the estate are generally
separate from the costs involved in selling assets.
"Jack" - John H. Fisher - TaxSe...@aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html
Where Ignorance is bliss, 'tis folly to be wise!=:)
Brian Collie
> House that's part of an estate has F.M.V. on date of death
> of $250,000. It's sold by estate 3 months later for
> $265,000. Expenses of sale are $17,000 (Broker's commission,
> etc.). Are expenses deductible on Form 706 or 1041? Is there
> a choice at the election of the Executor as to where they
> can be deducted?
6% appreciation in 3 months? Are you sure that it was valued
correctly on the 706?
Lin706
> of $250,000. It's sold by estate 3 months later for
> $265,000. Expenses of sale are $17,000 (Broker's commission,
> etc.). Are expenses deductible on Form 706 or 1041? Is there
> a choice at the election of the Executor as to where they
> can be deducted?
The FMV will be $265,000 for 706 purposes; the sale occurred so
close after death, that will be the FMV - the heck with your
appraisal. The selling expenses are deductible on the 706 ONLY
if the sale of the real estate was necessary to raise cash to pay
taxes, administration expenses and debts of the decedent. If the
house was sold to facilitate distribution of the estate, they are
NOT deductible on the 706 and would be available on the 1041.
Incidentally, the deductibilty of the selling expenses only the
necessary stuff also applies to PA inheritance tax returns (since
Bernie is in Pittsburgh).
Linda, EA in PA
32 years experience estates & trusts
Art Kamlet
>> of $250,000. It's sold by estate 3 months later for
>> $265,000. Expenses of sale are $17,000 (Broker's commission,
>> etc.). Are expenses deductible on Form 706 or 1041? Is there
>> a choice at the election of the Executor as to where they
>> can be deducted?
> You missed the boat completely. Costs of sale are deducted from
> the proceeds of the sale.
Or, as often happens on house sales, the 1099-S will report
gross sales price. In that case, your 1099 and Schedule D
Sales amount will not balance. To make it balance, report
gross sales price but add expenses of sale to cost basis.
> It should go on the 1041 but not as a
> separate cost like you suggest.
--
Art Kamlet ArtK...@aol.com Columbus OH K2PZH
Bruce D. Steiner
>> of $250,000. It's sold by estate 3 months later for
>> $265,000. Expenses of sale are $17,000 (Broker's commission,
>> etc.). Are expenses deductible on Form 706 or 1041? Is there
>> a choice at the election of the Executor as to where they
>> can be deducted?
> The FMV will be $265,000 for 706 purposes; the sale occurred so
> close after death, that will be the FMV - the heck with your
> appraisal. The selling expenses are deductible on the 706 ONLY
> if the sale of the real estate was necessary to raise cash to pay
> taxes, administration expenses and debts of the decedent. If the
> house was sold to facilitate distribution of the estate, they are
> NOT deductible on the 706 and would be available on the 1041.
> Incidentally, the deductibilty of the selling expenses only the
> necessary stuff also applies to PA inheritance tax returns (since
> Bernie is in Pittsburgh).
The date of death value is a factual question. In a hot
real estate market (such as NY in 1998-2000), the value
could easily have gone up by 6% in 3 months.
Whether the selling expenses are deductible as adminstration
expenses (in which case the executor could deduct them
either on the estate tax return or the estate's fiduciary
income tax return), or whether they can only be used to
reduce the amount realized, turns out to be a difficult
question. In addition to the reasons Linda mentioned, the
regulations permit the deduction of selling expenses if the
sale was necessary to effect distribution of the estate.
Treas. Reg. =A7 20.2053-3(d)(2). The decided cases go both
ways. The results on audit can go both ways, depending upon
the particular IRS estate tax attorney, and perhaps also
depending upon the other issues involved in the particular
audit.
This can be a difficult choice for the executor. If the
estate (or the surviving spouse's estate) will be a taxable
estate, the deduction will generally provide the greatest
benefit on the estate tax return, if it's allowed on audit.
On the other hand, if the executor claims the deduction on
the fiduciary income tax return, it's less likely to be
audited. Finally, depending upon the other income and
deductions, using the selling expense as a reduction of the
amount realized (thus producing a capital loss) can
sometimes provide the greatest benefit.
As Linda pointed out, Pennsylvania is one of the few states
left that still has an inheritance tax, which generally
applies even where there is no Federal estate tax. In most
cases, the Pennsylvania inheritance tax is a nuisance, but
doesn't have much impact on the planning. But as the
Federal exemption increases, there will be more estates in
which the application of the Pennsylvania inheritance tax
will affect the planning.
So Bernie really needs to consult with the lawyer handling
the estate, who can give him specific advice based upon all
of the facts of his particular case.
Linda said that Bernie is in Pittsburgh? There was another
Bernie in Pittsburgh who had similar questions a couple of
years ago. Is this the same person, posting under a
different last name?
Bruce Steiner, attorney
NYC and Hackensack, NJ
also admitted in FL
Bernard fruchtman
Much thanks to all who responded, especially Bruce and
Linda. Your responses were most pertinent and helpful. By
the way. I am located in New York and don't know who Bernie
in Pittsburgh is. The F.M.V. appraisal was done by an
appraiser chosen by the Superior Court of the District of
Columbia- Probate Division. Date of death was July 23, 2001
and sale was Nov. 16, 2001.
I always thought that an appraisal was an art and not a
science and was somewhat surprised by comments that a 6%
difference in 3 months might cause problems on an audit of
Form 706. Do you think that an appraisal by a Court selected
appraiser carries more weight?
Also, it seems to me that if i can deduct expenses on 706 i
will save about 40% (approximate estate tax rate) of the
$17,000 expense. and then pay a 20% capital gain rate on
$15,000 gain ($265,000 proceeds -$250,000 basis) on the
1041. Or must $250,000 basis be reduced by the $17,000
expenses taken on 706 when computing gain for 1041,
producing a capital gain of $32,000 for the 1041?
bernard fruchtman