Form 1040 adjustment entry for income that is shown on Form 1041 on decedent's return

[EugeneD]

When a taxpayer passes away there income needs to be split between Form 1040 and Form 1041 where the total income is reported on Form 1040, but there needs to be an adjustment made to remove the income that will be reported on Form 1041 because that income was earned/received post date of death, so that the taxpayer is not paying tax twice on the same income.

Example:

Form 1099-INT - shows $1,000. That $1,000 will need to be reported on Form 1040, but let's assume the taxpayer passed away on 06/30. So, 50% of that $1,000 interest should be reported on Form 1041. What needs to happen is the following:

Form 1040:

$1,000 from the 1099-INT is shown on Schedule B Part I line 1, then there needs to be a subtotal which will state that same $1,000. Below the subtotal there needs to be a line item that states the following: "Form 1041 - Decedent's name and address as it appears on Form 1041" with the amount of -$500. Then the total of the interest income Schedule B > Part I > Line 4 will show a net amount of $500 which is carried to the 1040 interest income line.

This is currently not possible and the only way to input what amounts are being reported on Form 1041 that need to be subtracted out from the totals on Form 1040 is if you enter another Form 1099-INT, but with the description of "Form 1041 - Decedent's name and address as it appears on Form 1041" and type -$500. This will appear above the "Subtotal" line which is not correct, but at least the total taxable amount will be correct.

Also, this is not only in regards to Interest Income, but needs to work the same way for Dividend income, and certain other income items as indicated by the Form 1041 instructions.

NOTE: Yes, the instructions for how to do this is under Form 1041, but those instructions are actually for Form 1040 specifically. See the IRS instruction for Form 1041 under Line 1 - Interest Income to see if my example above makes sense. The snippet of those instructions is pasted below:

"For the year of the decedent's death, Forms 1099-INT issued in the decedent's name may include interest income earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on Schedule B (Form 1040), line 1, the total interest shown on Form 1099-INT. Under the last entry on line 1, subtotal all the interest reported on line 1. Below the subtotal, enter “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the interest reported on Form 1041 and subtract it from the subtotal."

Suggestion on how to incorporate and provide a fix:

Please add another line items in the details for Form 1099-INT in ProConnect under "Adjustments to Federal Taxable Interest" that would say 'Other' where the user can type out what is needed as the description and enter amounts that they need to show up as adjustments for a specific 1099-INT. Then do the same for 1099-DIV, etc.

[BobKamman]

With ProSeries, there is an "Interest Income Worksheet" where you can subtract out "Nominee Distributions."  ProConnect should have something similar.  Just use that.  Those 1041 instructions were written before the days of e-filing.  No one at IRS is going to see what is entered on Schedule B unless the return is kicked out next year for audit, and at that point even IRS examiners are smart enough to figure out it's the rest of the year for a decedent.  (In your example, Schedule B isn't even going to be filed because interest is less than $1,500.)