Estate Tax versus personal tax returns for inherited rental property held in Estate name.

[trapprain]

Estate tax return filed correctly in 2018 for year of death but the sole beneficiary has subsequently been reporting rental income on her personal return. However both the property deed and the mortgage are currently in the name of the " Estate of..." because the mortgage company has decided that the beneficiary does not have enough income to justify the mortgage amount. Note- The rental lease lists the beneficiary not the Estate as the lessor.

Is there any "audit-justifiable" reason to allow the reporting on the personal return to continue rather than filing past 1041s and amended 1040s?

Aside- anyone know of a consumer advocacy group that might help the beneficiary to assume the mortgage and to get the property in her name?

[BobKamman]

The beneficiary is the equitable owner of the property, so I don't see a problem putting the income and expenses on her 1040.  I doubt the deed is in the name of the estate; who would have signed and recorded a new deed?  More likely, the mortgage company did an address change on its bills.  What SSN and EIN are they using to report the interest paid?  For that matter, the mortgage is probably not "in the name of" the Estate.  The beneficiary may not have good credit, but the Estate's has to be worse.

Are there other estate assets?  Has a probate been opened and/or closed?  Who would sign the 1041 if you wanted to file one?  

[trapprain]

Thanks for your timely reply Bob.

That's what is so unusual- Both the deed and the mortgage (interest is reported using the Estate EIN) are specifically in the name of the "Estate of..." I assume they were changed by the lawyer who wound up the estate, worked with someone to do the 2018 Estate tax return,  and put it thru probate (closed and other beneficiaries paid off)  a few years ago..

The beneficiary is the executrix who signed the original Estate 1041 for 2018.

[qbteachmt]

"the beneficiary does not have enough income to justify the mortgage amount."

But the Estate can always go out and get a side hustle? Weird.

"anyone know of a consumer advocacy group"

Hi, I need help getting more in debt personally...

You don't need to "justify" but qualify for the mortgage amount. For secured debt, the property would stand for the debt. If the property is that highly leveraged, it might be best to settle the estate. 

[TaxGuyBill]

I think I may be okay with it.

You said the lawyer closed up the Estate, so it seems like from a tax perspective she was distributed the property.  From what I've read in the past, just because titles are not registered with the local governments it doesn't change the fact that from a tax perspective it is hers. 

There are also situations where an Entity is closed up that the IRS specifically allows the owner/beneficiary to report residual income and expenses on their 1040.   This would be similar, but as I said, as far as I've read I think it is hers anyways (regardless if the title has been transferred or not).

[trapprain]

Thanks Bill, I'm also comfortable with that conclusion, but you expressed it better than I could.   As a solo practitioner it really helps to be able to get another perspective.

[BobKamman]

I seriously doubt there is a deed from the estate, to the estate.  I'm lucky to live in a county where all those documents are available online.  You might have to be more insistent, to see what really has been recorded.  But it will not only clear up your confusion, but your client's as well.