Form 1041 for probate estate several years after death

[mhkdgal]

Taxpayer died October 12th of 2020 without a trust or a will.  The probate court appointed an Administrator and issued Letters of Administration in April of 2022.  The only asset was a single family home, which was sold in February of 2023.

I believe I need to file a "first" and "final" 1041 for the estate to report the sale of the home.  There is no gain on the sale of the home.  In fact, the value of the home decreased and was sold for over $50k less than its FMV on date of death.

Questions:

1)  In Lacerte, would the "Date Entity Created " reported on page 1 of the 1041 be the date of death (October of 2020)?   

2)  If we use date of death as the date the estate was created, will it raise any red flags with the IRS that we have not filed any Forms 1041 prior to 2023?   The estate did not have any income, and therefore no filing requirement, in 2020, 2021 or 2022, so I don't think this should be a problem, but have not had this situation before.

3)  Can we choose to use either a calendar year or a fiscal year since this is an estate?    For example, if the estate was created in October of 2020 and the house was sold in February of 2023, can we file the Form 1041 using a short fiscal year beginning October 1, 2022 and ending February 2023 (after house was sold and distributions were completed)?

Thank you for any help / advice. 

[sjrcpa · Accepted solution]

1. Yes

2. If anyone asks, you reply there was no filing requirement bc there was no income

3. You can establish the tax  year for an estate on the first return filed.

[BobKamman]

"I believe I need to file a "first" and "final" 1041 for the estate to report the sale of the home."

Why do you believe that?  If no gross income, no return required.  

Perhaps you mean, "just to be on the safe side, I think I'll file a return, which is something like filing a final 1040 for the decedent although as far as I know there wasn't enough income before October 2020."  (Setting aside the question of Recovery Rebate Credits.)

But who are the beneficiaries?  Would a K-1 passing through a capital loss be helpful to them?  Or were they living in the house all along? 

[pat]

Hmmm, I am a bit dubious as to why you are asking. Are you using Lacerte software to prepare this return or doing this  yourself? The date created should be consistent with the SS-4 letter returned from the IRS with EIN number for the estate. That will determine your tax year.

[mhkdgal]

I am using Lacerte to prepare the return.     Just to be sure I am understanding your answer, you are saying the date the estate was created is the date on the IRS SS-4 letter, and not the actual date of death?

[mhkdgal]

Thanks @BobKamman for your reply.   You are correct, I don't "have" to file the 1041, but to be safe, we are going to file.   Also, the attorney is telling me that the court requires the final tax return to be filed before they will "close out the probate estate".

I asked the attorney for beneficiary information so we could provide the K-1s showing the loss.  The attorney has contacted the beneficiaries and given them a deadline to provide their information.   None of the beneficiaries are interested in receiving a K-1 showing a loss, so the attorney wants to wrap this up by filing a zero tax return and not issuing K-1s.

I'm unsure what date to use as the date the estate was created.

Thank you for your input!

[mhkdgal]

Thank you @sjrcpa.

That's exactly what I was looking for.

[pat]

Sorry for the late response but yes, the date created on the SS-4 should have been the date of death. Some people applying for the SS-4 don't always get that date right.