1041 Estate K-1 Question

[Wonderboy1836]

I want to preface that I don't usually dabble with 1041s so this is new to me. I have a client who bought out a cottage from his deceased mother's estate (his 9 sibling also had a shar of it that he bought out). I was under the impression that this would trigger K-1s for all the siblings but the software is computing any. Instead, it is having the estate pay taxes on the capital gains. I guess my question is, is this correct? Am I doing something wrong? If the estate is paying the taxes, would the siblings not get a K-1 from any money distributed after the sale?

Any help is appreciated. I typically just stick with 1040s but thought I had a decent understanding of this. So if I'm wrong, I'd like to know where I went wrong.

Thanks y'all

[BobKamman]

It depends on local (state) law but usually capital gains are taxed to the trust or estate; only "other income" flows through to the beneficiaries.  Unless it's the 1041 final return.  Is it?  Have you marked it as Final?

[Wonderboy1836]

Hi Bob, thanks for your response. I did not check off Final Return, after doing so still no K-1s popping up for any of the kids. So again, I'm convinced I'm doing something wrong here. Unless I suppose the K-1s won't automatically populate and I have to do it?

[sjrcpa]

How soon after death did he buy his siblings' shares? Are you using date of death FMV as basis?

I wouldn't expect a gain unless the estate has held the property for a long time.

[sjrcpa]

You probably have a Diagnostic telling you to distribute the gain to the beneficiaries.

EDIT: In Lacerte you would. I don't know about ProSeries.

[Wonderboy1836]

Hi, so yes the cottage has been in the Estate's possession since Sept 2018. The one brother bought it out November of 2023.

[sjrcpa]

That explains the gain.

[BobKamman]

@sjrcpa With ten beneficiaries I would expect about five years for the deal to close, resulting in a gain.  

[sjrcpa]

That makes sense.