Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

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AgentJones
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Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by AgentJones »

I am the executor for my cousin's estate and I am trying to figure out if a Form 1041 will need to be filed, and if so how to properly account for savings bond interest.

The estate has had no income other than redemption of matured savings bonds, where all savings bond interest was already included on the decedent's final year Form 1040. It seems clear that a 1041 will still be needed to account for the savings bond 1099-INT that the estate will receive. But where to adjust for Savings Bond Interest Already Reported (i.e. is it possible to make this adjustment on the 1041 itself and therefore not need to issue K-1s, or do K-1s have to be issued for the unadjusted interest and instructions given to the beneficiaries to make the interest adjustments on their own Forms 1040?).
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Lee_WSP
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by Lee_WSP »

The estate has had no income other than redemption of matured savings bonds, where all savings bond interest was already included on the decedent's final year Form 1040
The estate doesn't come into being until the decedent dies, so your comment above doesn't make sense to me. Are you saying the decedent received the income during life and it's accounted for on his 1040? If so, then the estate received no income.

Or are you saying that the estate received the income, but you reported it on the decedent's final return?
bsteiner
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by bsteiner »

The executor may elect to accrue the interest on savings bonds through the date of death on the decedent's final income tax return. The interest after the date of death will be income to the estate if the executors cashed in the bonds.
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AgentJones
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by AgentJones »

bsteiner wrote: Fri May 13, 2022 12:31 pm The executor may elect to accrue the interest on savings bonds through the date of death on the decedent's final income tax return. The interest after the date of death will be income to the estate if the executors cashed in the bonds.
Thank you both for responding.

I, the executor, elected to accrue all of the savings bond interest on the decedent’s final income tax return. The savings bonds had all matured prior to the date of death but not been redeemed. So as executor, I redeemed the bonds to an estate checking account. I’m just wondering what to do when the estate EIN receives a 1099-INT. Is there still a 1041 filing requirement and how/where to adjust the savings bond interest down (on the 1041?)? Thanks for your counsel. I didn’t think I needed professional help but seems like I may.
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AgentJones
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by AgentJones »

Lee_WSP wrote: Fri May 13, 2022 12:22 pm

Or are you saying that the estate received the income, but you reported it on the decedent's final return?
Yes, this is what I was trying to say!
bsteiner
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by bsteiner »

AgentJones wrote: Fri May 13, 2022 1:41 pm
bsteiner wrote: Fri May 13, 2022 12:31 pm The executor may elect to accrue the interest on savings bonds through the date of death on the decedent's final income tax return. The interest after the date of death will be income to the estate if the executors cashed in the bonds.
Thank you both for responding.

I, the executor, elected to accrue all of the savings bond interest on the decedent’s final income tax return. The savings bonds had all matured prior to the date of death but not been redeemed. So as executor, I redeemed the bonds to an estate checking account. I’m just wondering what to do when the estate EIN receives a 1099-INT. Is there still a 1041 filing requirement and how/where to adjust the savings bond interest down (on the 1041?)? Thanks for your counsel. I didn’t think I needed professional help but seems like I may.
If the bonds had reached final maturity, wouldn't the interest on those bonds have accrued on the final maturity date?

As to the reporting (probably not relevant for the ones that reached their final maturity date), see IRS Publication 550, page 17: https://www.irs.gov/pub/irs-pdf/p550.pdf.
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AgentJones
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by AgentJones »

bsteiner wrote: Fri May 13, 2022 1:50 pm
AgentJones wrote: Fri May 13, 2022 1:41 pm
bsteiner wrote: Fri May 13, 2022 12:31 pm The executor may elect to accrue the interest on savings bonds through the date of death on the decedent's final income tax return. The interest after the date of death will be income to the estate if the executors cashed in the bonds.
Thank you both for responding.

I, the executor, elected to accrue all of the savings bond interest on the decedent’s final income tax return. The savings bonds had all matured prior to the date of death but not been redeemed. So as executor, I redeemed the bonds to an estate checking account. I’m just wondering what to do when the estate EIN receives a 1099-INT. Is there still a 1041 filing requirement and how/where to adjust the savings bond interest down (on the 1041?)? Thanks for your counsel. I didn’t think I needed professional help but seems like I may.
If the bonds had reached final maturity, wouldn't the interest on those bonds have accrued on the final maturity date?

As to the reporting (probably not relevant for the ones that reached their final maturity date), see IRS Publication 550, page 17: https://www.irs.gov/pub/irs-pdf/p550.pdf.
Yes, that's a good point. These paper bonds had all matured in recent years but been forgotten about in a safe deposit box.

Thanks for pointing to that publication. It sounds like the 1041 and associated K-1s need to be filed and the beneficiaries instructed to enter “U.S. Savings Bond Interest Previously Reported” on their 1040s. I'm hoping I can do all that in Turbo Tax (or maybe even using paper forms?). Thanks again for your advice!
Gill
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by Gill »

I'm not clear on why you need to issue K-!'s. Can't you just net it out at the estate level and not include it in the K-1's?
Gill
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AgentJones
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by AgentJones »

Gill wrote: Fri May 13, 2022 2:50 pm I'm not clear on why you need to issue K-!'s. Can't you just net it out at the estate level and not include it in the K-1's?
Gill
I was wondering about that. But I can't figure out if there is an appropriate line to net it out on the Form 1041. Line 15a Other Deductions?
Ken Reckers
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by Ken Reckers »

I would net it out on line 1 of 1041 with an attached statement showing the 1099-INT amount, the subtraction, and the net. Mimic the wording that would be used if it was 1040 Sch B, which has fairly clear instructions.

I experimented in Turbo Tax Business for 1041, and all they say is enter an additional 1099-INT with the adjustment amount as a negative. Then a zero shows up on line 1 of 1041, and no attachment is generated. I personally would add the attachment.

This thread doesn't apply to you but might help others. Poster near the end suggests including SSN of decedent who was a different person.
viewtopic.php?t=269462

That's just me, a rando on the internet.
burbank
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by burbank »

AgentJones wrote: Mon May 16, 2022 10:59 am I was wondering about that. But I can't figure out if there is an appropriate line to net it out on the Form 1041. Line 15a Other Deductions?
2021 IRS Publication 559 Survivors, Executors, and Administrators page 11 has a small section titled Cashing U.S. savings bonds which states...

The interest shown on your Form 1099-INT won't be reduced by any interest reported by the decedent before death, or, if elected, by the personal representative on the final income tax return of the decedent, or by the estate on the estate's income tax return. Your Form 1099-INT may show more interest than you must include in your income.

You must make an adjustment on your tax return to report the correct amount of interest. Report the total interest shown on Form 1099-INT on your Schedule B (Form 1040). Enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you didn't receive Forms 1099. Show the total interest that was previously reported and subtract it from the subtotal. Identify this adjustment as “U.S. Savings Bond Interest Previously Reported.”
burbank
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Re: Form 1041 for estate when all interest was already reported on decedent's final year Form 1040

Post by burbank »

AgentJones wrote: Fri May 13, 2022 2:35 pm It sounds like the 1041 and associated K-1s need to be filed and the beneficiaries instructed to enter “U.S. Savings Bond Interest Previously Reported” on their 1040s. I'm hoping I can do all that in Turbo Tax (or maybe even using paper forms?).
Building on my previous post... If you use TurboTax Business to prepare the estate 1041, I believe the “U.S. Savings Bond Interest Previously Reported” adjustment will appear on your 1041 Interest and Dividend Income Worksheet but not actually on the forms you file. And if I understand your situation correctly, once you correct the interest received by the estate, you will have no income to report and no need to issue K-1s.
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