Form 1041 & Investment Tax

[stellex356]

I am preparing an estate tax return. The executor sold stocks that generated a LT capital gain of $215,000.

I used the estate exclusion/credit to offset the tax generated. However, I am getting an investment tax amount of about $7,000 due. Is this correct or can this be offset also?

Steve

[Just-Lisa-Now-]

what do you mean offset? either the tax gets paid on the 1041, or it carries down to the beneficiaries and they pay the taxes.

[stellex356]

Stocks were sold by the estate for a LT gain of $215,000. This is the only income for the estate. Cash was distributed to the beneficiaries. I'm trying to use the estate tax credit on the estate tax return to "pay" the estate tax due on the stock sale (approximately a $40,000 tax).

[Just-Lisa-Now-]

what estate tax credit?

[stellex356]

I guess I'm getting myself more confused. Here's the entire situation:

1. Client passed 7/20
2. Executor sold stock 9/20 under the estates FEIN number with a LT gain of $215,798 using original cost basis. This is the only income for the estate.
3. The cash from the sale was distributed to the beneficiaries.

Questions:

1. Which for does this get reported on, 1041 or 706? I was assuming 1041.
2. Should I be using a stepped up basis for the stocks as of clients date of death?

I appreciate your help on this

Steve

[sjrcpa · Accepted solution]

Stock sale gets reported on 1041. If this is a first and final 1041 the gain will pass out to the beneficiaries on K-1s and they pay the tax. The basis for the stock is the date of death value.

If not final, the estate pays the income tax on the gain, which includes net investment income tax.

The "estate exemption" applies to the value of the estate for estate tax purposes. There is no income tax exemption.