Gary Bode, CPA: If you need help preparing Form 1041, please consider calling us for a free phone consult at (910) 399-2705.
Hi, I’m Gary Bode, a Form 1041 CPA with a virtual office. When a loved one dies, there are usually multiple “one of” tasks that need attention, exacerbating an emotionally difficult time. Here’s a common question I get.
I prepared Form 1041 myself, but where do the Excess Deductions on Termination (Line 11A of Form 1041’s Schedule K-1) go on my personal Form 1040?
First a Form 1041 Overview
- Form 1041. The Income an Estate earns gets presented on IRS Form 1041. Form 1041 uses multiple sub-schedules to calculate its Taxable Income based on a calendar or fiscal year. As with most tax forms, you must report income, but have the right to deduct expenses. Deductions are not always the same as defined on the more familiar Form 1040.
- Every beneficiary on Form 1041 receives a Schedule K-1 from the estate. Schedule K-1 allocates the beneficiary’s financial information from Form 1041.
- Each beneficiary includes the numbers from Schedule K-1 on their Form 1040. Of course the IRS gets a copy of Schedule K-1 too, so they look for this info on the beneficiary’s tax return.
Excess Deductions on Termination - Line 11A of Form 1041’s Schedule K-1 - a Two Tiered Process on Schedule A of Form 1040
- Sometimes the Estate’s deductions exceed the income. So no tax is due from Form 1041.
- The excess deductions flow through Form 1041 into Line 11A of the Schedule K-1 for each beneficiary, as allocated by Form 1041.
- It sounds like you’re looking for these excess deductions on termination, from Line 11A of Schedule K-1, on your Form 1040’s Schedule E. Schedule E is the usual placement for Schedule K-1s from Estates, Corporations and Partnerships. But there’s a twist.
- Excess Deductions on Termination go into the Other Deductions section of Form 1040’s Schedule A (Itemized Deductions).
- Round One. As Itemized Deductions on Schedule A, excess estate deductions on termination must total more than 2% of your Adjusted Gross Income to allow any tax benefit.
- Round Two. The sum of all sections of Schedule A have to exceed the Standard Deduction.
So, it is a two tier process On Schedule A for the excess deductions from Form 1041 to do you any good on your personal Form 1040 return.
I’m a Form 1041 CPA with a virtual office to serve you where ever you or the beneficiaries live. We prepare associated State returns, too, of course. If self preparation of Form 1041 gets worrisome, please consider giving us a call at (910) 399-2705 for a free initial consult. Our posts should give you a feel for our ability and proactive attitude.
What if one of the bebeficiaries is another Trust. Is it treated the same? Deductions subject to 2%? I assumed that was correct, but my software will not pick it up at all.
Hi Mike: some deductions are capped by 2%, other’s aren’t. But 1041 functions same whether its an estate or trust. Hope that helps.
Hi Gary. I am preparing a friends return and I searched internet and found this thread. Thank you. I have similar question as Mike Hoenig above, the trust is the sole beneficiary at termination of the Probate estate, and received the sole K-1, which has excess deductions. Where are these items deducted on the Trust, which is not in it’s final year? The Trust has income for the year and has made distributions to the Trust’s beneficiaries. I just need to know where to deduct or how to handle the excess deduction on return of the trust and/or it’s K-1s. Thank you.
Sorry Lee this is too complex for a comment.