I am filing a final 1041. The only thing that happened during the year is the sale of the house and some administrative expenses. The sale of the house resulted in a loss (based on the basis as of the date of death). I will be distributing the sale proceeds to the beneficiaries. How does this translate on the 1041? I know there will be a loss on Schedule D for the sale of the house, but will I also have to report the final distribution to the beneficiaries as income on the K-1 as well? Thanks!
Estate Planning Attorney
The final distribution of cash is not "income" to the beneficiaries. Each beneficiary will receive a K-1 which will show their distributive share of the losses in the final year of the estate. The losses will consist of the loss on the sale of the house and the administrative expenses, including attorneys fees and executor's fee. So, each beneficairy will receive cash and should receive a loss from the estate that they will then report on their personal income tax return. You should carefully review the IRS instructions for form 1041 and schedules D and K-1. Hope this helps.