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

[Seeker1398]

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?

[Accountant-Man]

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.

[Seeker1398]

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?

[sewcpa]

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.

[Seeker1398]

THERE IS NO ASSEST.  It is money only. And I know about what you are saying about rental but there is no RENTAL. The inheritance was money only.  No income was made except interest that is being taxed. But how do I get it not to tax the inheritance.

[IRonMaN]

I'm expecting Rod Serling to pop out any minute to provide some kind of intro.

[sewcpa]

ok, the CD or the savings acct is tax-free but the interest it earns after date of death is taxable to the heir.  (The exception is the savings bonds have built in interest over the time of those bonds that has not been taxed on the the deceased so IRS makes the heir (or estate) pay taxes on all of the interest including the interest earned before death)

[BobKamman]

Interest income would be shown on Line 1 of the Schedule K-1, so we know it is not interest income. 

If it is on Line 5 of the Schedule K-1, we know it could be any one of a number of things.  What I usually see there are proceeds from cashing in an annuity or IRA.  We know it's not rental income, because that would be on Line 7 of the Schedule K-1.

Some things on Line 5 are subject to the extra 3.8% tax on rich people.  But Box 14 is telling you that it's not subject to the additional tax, so you can subtract it out on the Form 8960.  But you don't have to worry about that unless your client is rich.  Your client still has to pay income tax on the Line 5 amount, just not the 3.8% surtax.  

Letters that come with Schedules K-1 should be ignored.  They might be propaganda planted by North Korean operatives.  IRS does not look at letters, it only looks at the Schedule K-1.  If you think the Schedule K-1 is wrong, write the 1041 preparer a letter.  

[Accountant-Man]

Seeker said in the original post, <<Have a 1041 inheritance line 5 of 1041. >> Seeker did NOT say line 7 of K-1.

Dear Seeker: find someone to mentor you on a K-1 input from an estate. It sounds like you haven't a clue.

[Accountant-Man]

Let Carnak the Great try another guess. Line 5 other income on the k1 is often used for the reporting of an IRA distribution received by the estate. It is not investment income, but it is taxable ordinary income.

Do you know what asset was owned by the estate, a pension or IRA that did NOT have a beneficiary designation, thereby causing the estate to report the income?