Why does Prseries not cancell out for adjustment 1411 on 1041 beneficiary adjustmentHave

Forum|Forum|5 years ago
August 4, 2020
1 reply
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Have a 1041 inheritance line 5 of 1041. there is an adjustment in box 14 "H" to zero out inheritance

but it is not working. It still wants to tax it as rental income, on schedule E. How do I get it to cancel out each other?

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Accountant-Man

Level 13

I don't understand your wording:

<<Have a 1041 inheritance line 5 of 1041>> Line 5 is rental income. An estate can own and rent out a property. Use Sch E.

<<there is an adjustment in box 14 "H" to zero out inheritance>> What does this mean, box 14 "H"? Is this an adjustment for net investment income? Why do you think this is correct? Is the rental a profit or a loss?

<<It still wants to tax it as rental income, on schedule E. >> The Sec 1411 adjustment is for the NII tax, not the net rental income as income. There is still income to be taxed.

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S

Seeker1398Author

Level 2

Maybe I did not explain well. On the K-1 of the 1041 estate the amount in on line 5 which is other portfolio and non business income. This is an inheritance the letter attached said. in box 14 one of the amounts listed their is the same amount as on line 5 but classified with an H which the instructions say is an adjustment for net investment income to the beneficiary for section 1411 deduction. Enter on line 7 of form 8960. Since is an inheritance should this not cancel each other out to be a non taxable event. The letter that came with the K-1 said there should be no tax due to this amount. I have not had but only one other of these and that one did cancel its-self out but this one does not. So it is confusing to me that line 5 of the K-1 says investment income and then shows up as rental on the schedule one. As an inheritance it should not be taxable should it?

S

sewcpa

Level 6

Inheriting an asset is usually tax-free (not an IRA, not savings bond interest) but what the asset earns is taxable to either the estate or to the heir. The rent house is tax free but the rent income is taxable.

The value of the rent house would not show on the K-1 so there would not be any cancel out activity.

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