Questions concerning 1041 Return for Estate with a rental property

Forum|Forum|2 years ago
March 10, 2024
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I have questions for how to file returns for my Mother who died in 2023, and who owned a rental home. I need to file a 1040 for the part of the year she was alive, and a 1041 form for her estate for the part of the year she was not alive. The rental home had both income and expense in both parts of the year. There are many separate assets contributing to the property’s tax depreciation. The home will sell this coming week and I will report that on the estate’s 2024 1041 return (which will be the final return for the estate).

My first thought was to enter the rental property income and expenses into 2023 1040 Turbotax for the entire year to get full-year figures for Schedule E and the other forms, but then to divide the full-year figures into two parts based on the portion of the year my Mom was alive. If I did that, I would have to manually enter numbers into both the 1040 and 1041 returns. Would that be proper, and would Turbotax allow me to enter numbers into the forms manually?

Another approach that came to mind was to fill in the 1041 form as if the Estate acquired the property at a cost equal to its stepped-up basis, and then have the Estate depreciate the property for the part of 2023 that it owned the property (all of it as a 27.5 year asset).

How should this be done?

Best answer by randy5419

As this is a question is about the functionality of TurboTax Business, I created a brand-new post posing my questions.

DianeW777

You are on the right track. File her personal return selecting the property was disposed of, converted to personal use, then you will answer the 'Special Handling' question which will take care of all the proper information on your mother's return. TurboTax will handle the correct depreciation on her return and of course entering only the expenses paid while she was alive in 2023. The steps below will take care of your mother's return for 2023.

You need to dispose of the property by telling TurboTax how and when it was disposed of. Follow the instructions below.

Click on Wages & Expenses
Scroll to Rental properties and royalties, click Edit/Add or Start/Revisit
Do you want to review your rental?, click Yes
Under Rent and Royalty Summary, click Edit
Click Update to the right of Assets/Depreciation.
Once you reach this screen for each asset, you must select 'This item was sold, retired, stolen, destroyed, disposed of, converted to personal use....'
Next enter the date you stopped using the asset for rental purposes - her date of death.
And answer 'Yes' you always used this asset 100% of the time for business. (The percentage of use doesn't change until after conversion from rental to personal use.)
Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.

Next, you will use the stepped up basis for the estate (Form 1041) and the date placed in service will be the date of death. The depreciation for the remainder of the year will be correct by using the 27.5 year recovery period. Enter only the expenses paid for the rental property for the remainder of the year.

@randy5419

[Edited: 03/11/2024 | 8:20 AM PST]

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