We had parents pass away in quick succession without wills back in 2021, which resulted in lengthy probate processes. The estate ultimately included a house, which was passed to the two surviving adult children in late 2023 (December) after sitting empty since the parents passed. The final joint personal income tax return for 2021 was filed, but the estate received a lump sum pension distribution in 2023 (from the first deceased parent's pension plan). The pension payout is the first income to the estate. We just received the 1099-R from another family member (the personal representative) and are trying to determine how to proceed with filing the Form 1041. Some funds were withheld for taxes at the federal and state levels, but likely not enough without there being deductions. We have a lawyer who has managed the probate processes, but has not provided any tax advice/support/guidance.
I am trying to understand two main issues. First, what can be deducted from the estate's income for the year? With no deductions and the pension distribution coming directly to the estate, there is not enough remaining money to pay the taxes that would be due at the estate rate since the funds have been used to maintain the empty house (property taxes, utilities, maintenance, yard service) for a couple years. Lots of conflicting information online, but it appears that probate costs can be deducted and maybe the costs to maintain the house since it was sitting empty.
Second, since there was no will the income to the estate will be divided evenly to the two children. It appears that the pass-through of the income to the beneficiaries would be better from an income tax perspective. Tax software (and some of the IRS language) suggests that the pass-through via K-1s is an option if the distributions are legally required (even if they didn't happen in the current tax year). Without a will, is it still okay to pass through the income following the probate process and need to distribute to the two children? In that case, I think the withheld taxes on the pension distribution would be refunded to the estate and then could be distributed later to help the children pay the personal income tax on the pass-through funds.
We hope to avoid filing an extension and hiring an accountant (but can if needed), since the amount of estate income is fairly modest and most has already been spent on estate-related activities. We started using TaxAct to complete the federal form. Any advice or insight is appreciated, this has been a long ordeal.
I am trying to understand two main issues. First, what can be deducted from the estate's income for the year? With no deductions and the pension distribution coming directly to the estate, there is not enough remaining money to pay the taxes that would be due at the estate rate since the funds have been used to maintain the empty house (property taxes, utilities, maintenance, yard service) for a couple years. Lots of conflicting information online, but it appears that probate costs can be deducted and maybe the costs to maintain the house since it was sitting empty.
Second, since there was no will the income to the estate will be divided evenly to the two children. It appears that the pass-through of the income to the beneficiaries would be better from an income tax perspective. Tax software (and some of the IRS language) suggests that the pass-through via K-1s is an option if the distributions are legally required (even if they didn't happen in the current tax year). Without a will, is it still okay to pass through the income following the probate process and need to distribute to the two children? In that case, I think the withheld taxes on the pension distribution would be refunded to the estate and then could be distributed later to help the children pay the personal income tax on the pass-through funds.
We hope to avoid filing an extension and hiring an accountant (but can if needed), since the amount of estate income is fairly modest and most has already been spent on estate-related activities. We started using TaxAct to complete the federal form. Any advice or insight is appreciated, this has been a long ordeal.
Statistics: Posted by inepteft — Tue Mar 26, 2024 10:02 am — Replies 0 — Views 62