Estate question

[99mtamchamp]

I have a long time client who's husband died last April.  She brought her 2021 tax info in last week.  When I was going through it there is a closing statement in there showing a sale of a piece of land.  The proceeds were issued to my clients deceased husband (passed away 4/21/21) titled "proceeds to Estate of ________"  I talked to my client and evidently she applied for an EIN in the name above. I don't do a lot of work with trusts and estates and I want to call a CPA I know in town to pass this job onto him, but I would just like to have an idea of what needs to be filed.  I would think a form 1041 and marked final since this is the one and only transaction that will be done. Her attorney told her once the return is done they can close the estate.  Any suggestions would be greatly appreciated.  Thanks

[IRonMaN]

A 1041 would need to be filed.  But there shouldn't be any tax involved since the property would receive a step up in basis on the date of his death.

[BobKamman]

Yes, a 1041 showing the sale of the land, and it might generate a Schedule K-1 showing a capital loss for the beneficiary (presumably your client).  But probably not for 2021 since the estate is still open.  It doesn't have to be a calendar-year return, but lately I have been encountering resistance from fiduciaries when I suggest fiscal year.  

[99mtamchamp]

Quick follow up question: when filing the 1041 the holding period for the asset I assume would be short term even though the decedent held it for over 20 years...just wishful thinking

[IRonMaN]

LT

[99mtamchamp]

ok thanks... I guess it doesn't matter too much if its LT or ST...the gain will flow through on a K-1 to the taxpayer and she has a lot of capital loss carryovers...does that make sense

[IRonMaN]

There shouldn't be any gain.

[BobKamman]

Inherited property is always long term (even when it's inherited by a trust).  

These days, there could be a gain.  I just had a question from someone whose decedent died in late 2019 owning property sold in early 2021.  House prices went up 40% during that period, or about 3% a month.  In your case, it might be easier to claim that sales price is also FMV at date of death, since the sale apparently was shortly after death.  

[joshuabarksatlcs]

Quick follow up answer:  In Lacerte, in the screen for asset sales, there's a tiny weeny box that says "inherited property".  Once you check that box, "INHERITED" would be printed out as the purchase date, and the transaction would magically become Long Term. 

But that's Lacerte.  Don't know about TT, PS or whatever initials your software goes by.

[99mtamchamp]

Thanks found the box in Proconnect that says "inherited property with stepped up basis"...checked...Also, just looking at the instructions regarding form 56...would this be something necessary for my scenario.  Thanks

[BobKamman]

Filing Form 56 is about as common as filing Form 2063.  Everyone talks about it but IRS would just be swamped with more paperwork if many people did it.  If anything, should have been filed when the husband died and (maybe) when the EIN was requested.  

[sjrcpa]

I stopped filing those years ago.