My mother died last April. At that time she had about $40,000 in cash in savings, investments, and retirement accounts on which I, my sister, or both of us were joint owners. We split the cash evenly within a few weeks.
She also had a house, which we sold within a few months, and split the proceeds of that as well. All of that was in accordance with her will, and there is no disagreement between my sister and me about any of it.
That was the extent of her assets.
I’ve completed her tax return for 2025, and am wondering if I need to file a 1041 for the estate as well. AFAICT, the estate had no income. In a previous thread here, someone said that as long as the estate didn’t earn more than $600, it’s not necessary to file a 1041.
From what possible sources could the estate have earned more than $600?
What happens if I’m supposed to file a 1041 and don’t?
When my MIL died early in the year, her estate (trust actually, but the 1041-related rules are the same) took almost the entire rest of the calendar year to close and the stocks and bonds in there generated over $600 in interest & dividend income, plus some capital gains. So we ended up filing a 1041 with K-1s for each of the 4 beneficiaries. Each of whom then filed their copy of their K-1 with their personal income taxes (1040).
The process of doing the 1041 was real simple, even if unfamiliar. Likewise the K-1s. I did the whole thing in an afternoon.
Good bet you have less income than that and can skip the 1041 filing.
BTW, I forgot to mention that the will left everything to a trust, administered by my sister, whose beneficiaries were her and me. It seems that if the trust earned more than $600, it would have to file a 1041.
I guess I’m wondering if there’s any possible source of income to the estate or the trust that I’m not aware of. I don’t think the cash was ever part of the estate, and nothing about the sale of the house would be considered income, would it?
The house’s basis would step up the FMV at date of death. Which, procedurally, the trustee should have immediately hired an appraiser to determine as of that date. Any appraisal is of course an estimate. But it’s a legally meaningful estimate. Appraisals can be retroactively done as of some prior date, but the farther back in time you need that, the lower the accuracy.
Whenever the trust later sells the house, the difference between that appraisal value and the actual sales proceeds would be a capital gain or loss.
The same logic would apply to any financial assets the trust sells from any sort of taxable account. E.g stocks, bonds, mutual funds. The only difference is the FMV of those assets at the date of death is easily determinable retroactively. If those assets are passed in kind to the beneficiaries, there’s no reportable gain / loss until the beneficiaries eventually sell them, perhaps years later. At which point their taxable basis is whatever was their FMV at date of death.
AIUI, and this is where I’m getting near the edge of my FQ-level knowledge …
Those trust gains and losses from any source need to be reported on Schedule K-1s, one given to each trust beneficiary. Which K-1s are also reported to IRS as part of a 1041 package.