Table of Contents Final 1040...................................................... 1 Responsibility for Filing Return.... 1 Transferee Liability.... 2 Signing the Return.... 3 Married Decedents... 3 Qualifying Widows and Widowers.... 5 Personal Exemption.... 6 Standard Deduction.... 6 Estimated Tax... 6 Refunds.... 7 Decedent s Income... 8 Matching Issues.... 9 Title to Assets.... 12 Wages.... 19 Interest.... 22 Dividends.... 27 Capital Gains and Losses.... 28 Tax Refunds.... 29 Schedule C Business Income.... 30 Alimony.... 30 Farm Income... 30 Rental Real Estate... 31 Partnership Interests.... 32 S Corporation Stock.... 36 Trust Income... 38 Medical Savings Accounts.... 40 Health Savings Account.... 40 Coverdell Education Savings Account.... 41 Section 529 Qualified Tuition Programs.... 41 Accelerated Death Benefits.... 42 Social Security Death Benefit... 42 Stock Options... 42 Installment Sales.... 44 Death from Terrorist, Military Actions, or as an Astronaut.... 44 Filing, Accounting, and Income Review Questions.... 47 Filing, Accounting, and Income Review Answers.... 51 Decedent s Deductions.... 55 Date of Payment.... 55 Deductions in Respect of a Decedent.... 55 Medical Expenses... 56 Net Operating Losses and Carryover Deductions.... 59 Alimony.... 60 NATP vii
IRA Contributions.... 60 Moving Expenses.... 60 Annuity Contracts.... 61 Mortgage Interest and Costs.... 61 1040 Tax Credits.... 62 Earned Income Tax Credit.... 62 Tax Credit Carryovers.... 62 Wrapping Up.... 63 Request for Prompt Assessment of Tax.... 64 Request for Discharge of Personal Liability.... 66 Comprehensive Example: Elaine Clemmons s Final Form 1040.... 68 Completed Example Final 1040.... 71 Deductions, Credits, and Wrapping up Review Questions.... 81 Deductions, Credits, and Wrapping up Review Answers... 83 Estate Form 1041...87 Probate.... 87 Probate Process.... 88 Administrative Issues.... 88 Taxpayer Identification Number... 90 Filing Requirements.... 92 Form 56.... 92 Form 1041.... 94 Due Date.... 94 Amended Form 1041.... 95 E-filing.... 95 Accounting Period.... 96 Accounting Method.... 98 Estimated Tax Payments.... 99 Allocation of Estimated Payments to Beneficiaries... 100 Election to Treat Trust as Part of Estate.... 101 Extensions.... 105 Form 7004.... 105 Form 1127.... 107 Forms That May Be Required... 107 Estate Tax... 108 Gift Tax Returns... 108 Estate Income.... 111 Notify Issuers of Information Returns... 112 Jointly Owned Property.... 113 Fiduciary Accounting Income... 114 viii NATP
Income Distribution Deduction.... 114 Distributable Net Income.... 115 Income in Respect of a Decedent.... 119 Basis of Property Acquired From Decedents.... 121 The Separate Share Rule... 129 Interest Income.... 132 Dividend Income.... 133 Capital Gains and Losses.... 134 Retirement Plans... 144 Sale of Personal Residence... 150 Rental Real Estate Activities.......................................... 153 Business Income or Loss.... 156 Installment Sales.... 156 Farm Income or Loss.... 157 Miscellaneous Income... 158 Canceled Debt.... 158 Filing, Accounting, and Income Review Questions.... 161 Filing, Accounting, and Income Review Answers.... 167 Estate Deductions.... 173 Income Tax or Estate Tax Deduction... 173 Deductible Expenses.... 175 Net Investment Income Tax.... 200 Alternative Minimum Tax.... 210 Household Employees.... 218 Credit for Taxes Paid or Withheld.... 218 Termination of the Estate.... 218 Items the IRS Will Look For.... 222 Comprehensive Example: Estate Form 1041.... 224 Completed Example: Estate Form 1041... 227 Deductions, Taxes, Credits, and Wrapping Up Review Questions... 253 Deductions, Taxes, Credits, and Wrapping Up Review Answers.... 257 Estate Form 706...261 Unified Rate Schedule.... 262 Fair Market Value.... 262 The Willing Buyer and Seller Test.... 263 Forced Sales.... 264 Timing for FMV Determinations... 264 Tax Assessments for Real Estate.... 265 Subsequent Events... 265 Discounts and Premiums... 266 Alternate Valuation Date.... 268 NATP ix
Form 706.... 269 Nonresident Filing Requirements.... 269 Due Date.... 272 Extensions.... 273 Statute of Limitations... 278 Form 706 Specifics... 278 Income in Respect of a Decedent... 280 Property in Which Decedent Had an Interest.... 281 Dower and Curtesy Interests.... 281 Community Property.... 281 Pages 1 Through 4... 285 Part 1.... 285 Part 2.... 285 Part 3.... 289 Part 4.... 290 Part 5.... 290 Part 6.... 291 Schedule A Real Estate.... 295 Schedule A-1 Special-Use Valuation.... 298 Schedule B Stocks and Bonds.... 299 Dividends.... 300 Other Investments... 301 Schedule C Mortgages, Notes, and Cash.... 302 Schedule D Insurance.... 303 Policies Held by Others.... 304 Filing and Schedules A Through D Review Questions.... 307 Filing and Schedules A Through D Review Answers.... 311 Schedule E Jointly Owned Property.... 315 Schedule F Miscellaneous Assets.... 317 Schedule G Lifetime Transfers.... 319 Transfers With Retained Life Estate.... 321 Transfers Taking Effect at Death.... 322 Revocable Transfers.... 323 Transfers for Insufficient Consideration.... 324 Schedule H Powers of Appointment.... 325 Schedule I Annuities, Pensions, and IRAs.... 326 Schedule J Expenses.... 329 Funeral Expenses.... 329 Administrative Expenses.... 329 x NATP
Schedule K Mortgages and Liens.... 332 Medical Expenses and Other Debt... 333 Schedule L Losses During Administration.... 335 Casualty Losses.... 335 Expenses Incurred on Property Not Subject to Claims.... 335 Schedule M Marital Bequests.... 336 Marital Bequests Encumbered by Debt.... 338 Schedule O Charitable Bequests.... 338 Schedule P Foreign Death Tax Credit... 340 Schedule Q Credit for Tax on Prior Transfers.... 340 Schedule R Generation-Skipping Tax... 341 Generation-Skipping Tax.... 342 Schedule U Qualified Conservation Easements.... 351 Practical Considerations... 352 Tax Apportionment.... 352 State Death Tax Deduction.... 353 Request of Discharge.... 354 Refund of Overpayment.... 354 Summary of Items Placed on Form 706, Form 1041, and Form 1040... 355 Comprehensive Example: Estate Form 706.... 356 Completed Example: Estate Form 706... 358 Schedules E Through U and Wrapping Up Review Questions... 375 Schedules E Through U and Wrapping Up Review Answers... 379 Appendix...383 Appendix A: Twenty Questions.... 383 Appendix B: Reasonable Causes under Reg. 20.6161-1.... 385 Appendix C: Sample Election to Accrue Savings Bond Interest.... 387 Appendix D: Election to Waive the Right to Medical Expenses on the Decedent s Estate Tax Return... 387 Appendix E: Sample Letter to Terminate the Fiduciary Relationship.... 388 Appendix F: Election to Take Income Tax Deduction for Estate Expenses......... 388 NATP xi