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TOPIC: Do I have to file a 1041

Do I have to file a 1041 4 years 4 months ago #1

  • FLuker
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I am the successor trustee of my mothers living trust. She died on July 10,2009. The holdings in the trust were interest bearing CD's, interest bearing checking accounts as well as the family home. My brother (also a beneficiary) purchased the home in November. The house devalued between the date of death and the date of sale. However, because of a clause in the instructions for schedule D we cannot take a capital loss - A trust cannot deduct a loss from the sale or exchange of property directly or indirectly between any of the following: A fiduciary and a beneficiary of the same trust.

So now I'm wondering if I have to go through the process and expense of filing the 1041 final return. The interest received after her death was less than $600. The accounts have been disbursed.

I'd appreciate your input.

Thanks,
Florence
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Re:Do I have to file a 1041 4 years 4 months ago #2

  • Michael P. Pancheri
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Florence, you're correct in stating that you can't take a capital loss on the trust's income tax return (form 1041) when your mother's house was sold to your brother. That's because you (as the trustee of your mother's trust) and your brother are not considered to be "adverse parties," and, therefore, there is no "arms-length transaction" involved in setting the purchase price. In other words , the IRS is afraid that you and your brother might conspire to lower the price below fair market value in order to create a tax deduction via a capital loss.

As for filing a 1041 for your mother's trust, the instructions for form 1041 state that a domestic trust must file Form 1041 if it has any taxable income for the tax year or gross income of $600 or more (regardless of taxable income), or the trust has a beneficiary who is a nonresident alien. If you meet any one of those requirements, then you must file Form 1041. In your case, you'd have to look to see if the trust had any taxable income remaining after deductions (See lines 10 - 15(b) of Form 1041). My guess is that the trust probably had enough deductions to offset the gross income, but you'd have to check on that yourself.

As a practical matter, I sometimes like to file Form 1041 even if it's not required simply because it lets the IRS know that a return was filed and no taxes were due. If a return is not filed, you might get a letter from the IRS saying that they haven't received a return for the trust, which would then require a response from you. If you file the return, make sure you check the box on the top of the form saying that it's the final return.
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Re:Do I have to file a 1041 4 years 4 months ago #3

  • FLuker
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Thanks so much. I guess I will go ahead and file the form for our trust. I may have questions concerning the actual filling out of the form. I really don't want to pay $500 for something that I should be able to file myself. I have some accounting background and I've prepared various types of returns over the years. However this is the first exposure to the 1041 and accompanying schedules.
Thanks again for your time and information.
Florence
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Re:Do I have to file a 1041 4 years 4 months ago #4

  • FLuker
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Thanks so much. I guess I will go ahead and file the form for our trust. I may have questions concerning the actual filling out of the form. I really don't want to pay $500 for something that I should be able to file myself. I have some accounting background and I've prepared various types of returns over the years. However this is the first exposure to the 1041 and accompanying schedules.
Thanks again for your time and information.
Florence
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Re:Do I have to file a 1041 4 years 4 months ago #5

  • Michael P. Pancheri
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Your welcome! With the amount and type of income you described, you should be able to prepare the Form 1041 without much difficulty. If you run into problems, just post your questions here and we'll help as best we can.
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Re:Do I have to file a 1041 3 years 10 months ago #6

In your response (#179), you say, "look to see if the trust had any taxable income remaining after deductions (See lines 10 - 15(b) of Form 1041)." Isn't the exemption amount on line 20 considered?
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