K1 1041 post sale of moms house

[51togo]

Mom passed on Dec. 24, 2024. There was a trust while I’m the trustee. There no other assets except the house. With the help with my Chase banker, I got an EIN number with that we listed and sold the house on July 2025. The house was sold for $1.03M and I kept $10k as reserve for any future bills while distributed remaining funds equally of about $330k after minus fee among my brother and sister. The house had an appraisal based on the deceased date 12-24-24 for $1.09M so $90k more than sold price.
Questions on my this year’s filing on K1. As I researching K1 is step up capital gain. Would I be required to file K1? If so would it be possible to claim capital loss as negative $90k and dividing the amount among us? There were also approximately $10k of fixing up the house before the sale, whether these expenses may be used? And lastly should I close the EIN number Chase account under my name / my mom’s trust name now as I see no more bills coming. She was living under SS with no other incomes.
I’ve post my earlier journey from mom gotten sick to the sale of the house. Her final gift to us were the trust and pre planned funeral. I think of her daily although the sale of the house etc was stressful still went smoothly which gave me closure and the experience of redoing my own trust. Thanks!

 

[pb4uski]

So the trust owned the house and upon her death the basis was stepped up to $1,090k. The trust sold the house for $1,030k so it had a $60k loss on sale (not $90k).

Unless the house was a rental, I don't think that you can get a tax benefit from the loss or from the fix-up expenses or the expenses of sale. If it were me, I would step up the basis to the sales price less fees and fix-up expenses so there is no gain.

You should file a form 1041 Trust return for 2025 and issue K-1's to the beneficiaries (federal and state if applicable).

 

[51togo]

So the trust owned the house and upon her death the basis was stepped up to $1,090k. The trust sold the house for $1,030k so it had a $60k loss on sale (not $90k).

Unless the house was a rental, I don't think that you can get a tax benefit from the loss or from the fix-up expenses or the expenses of sale. If it were me, I would step up the basis to the sales price less fees and fix-up expenses so there is no gain.

You should file a form 1041 Trust return for 2025 and issue K-1's to the beneficiaries (federal and state if applicable).

@pb4uski you are correct! $60k paper loss based on the appraisal. Btw the appraisal was not done on the date of my mom’s death. They back dated to that day using five comps. Housing prices peaked in 2024 and start declining in 2025, location matters it’s slowing moving towards a buyers market. In 2024, often numerous offers but when we sold my mom’s house only a single offer. Thanks!

 

[51togo]

@pb4uski oh yeah it was not a rental property, my mom had a fall in November 2024. Shortly afterward moved from ICU to nursing home just when we were searching for reasonable locations, she passed away. Lived in the house for 30 plus years, I would like to keep it as a rental but the property tax will increase from $3k to $12k, both my siblings against keeping it so that the back story.
I have an appointment with my accountant but not sure he’s familiar with this kind of uncommon situation. I like to educate myself on the topic beforehand. As this is a knowledge group, btw just found this link which falls into my situation. Thanks again!

https://www.hrblock.com/tax-center/income/investments/capital-gains-or-loss-on-inherited-property/

 

[cathy63]

Did you have any personal use of the house after your mother's death? I.e. did you treat it as a second home and spend time there for purposes other than cleaning it out and getting it ready for sale? If not, then it's an investment property and you can claim the loss on the estate's tax return.

You'll need to file K-1s to distribute the loss to all of the trust beneficiaries. I would recommend getting professional help with this.

 

[51togo]

Did you have any personal use of the house after your mother's death? I.e. did you treat it as a second home and spend time there for purposes other than cleaning it out and getting it ready for sale? If not, then it's an investment property and you can claim the loss on the estate's tax return.

You'll need to file K-1s to distribute the loss to all of the trust beneficiaries. I would recommend getting professional help with this.

@cathy63 not at all, good info appears not a common thing. But once mom’s passing and funeral. We arranged contractors to fix up the house. Took months to sort out all her belongings and donated most of the furnishings just to keep it simple. Replaced kitchen flooring, painted the inside and outside. Listed for sale and just missed the market. Probably could have sold it for the same 6 months earlier but the time spent was more healing. Thanks Cathy!

 

[38Chevy454]

I agree that you could claim the $60K price difference as loss, and the related house fix-up costs, as well as selling fees; such that they all reduce the amount distributed to heirs from the appraised value. But since you already distributed house sale funds less the fix-up and selling fees, the only thing not accounted for is the $60K cap gain loss. So as cathy63 suggested, you need K-1s to be generated as part of the estate 1041. Then each K-1 recipient includes the $20K loss as offset against their personal income. Also concur with this being an area for professional tax help. If it was less than $60K you might just ignore it, but $20K for each heir could be a substantial tax deduction benefit.

My suggestion is keep the estate account open a little longer just in case something comes through late. Example: on my parent's estate which I was executor, there was a payment received related to a class action lawsuit against insurance company that was received probably 6 years after the estate was essentially closed and done. So had to do another 1041 for that year as well as open a new estate account since the check was made out to parent's names. Big hassle for $1000 payment, which was $333 for each heir.

 

[Midpack]

Did you have any personal use of the house after your mother's death? I.e. did you treat it as a second home and spend time there for purposes other than cleaning it out and getting it ready for sale? If not, then it's an investment property and you can claim the loss on the estate's tax return.

You'll need to file K-1s to distribute the loss to all of the trust beneficiaries. I would recommend getting professional help with this.

I'm going to face the same thing next year after I sell my sisters house. I have listed it for less than appraised value (I also paid for a new appraisal), so I will have a capital loss on my 1041>K-1. I plan to hire a CPA to confirm but that's my understanding. I think I even read recently that the fees associated with selling the house add to the loss, but not sure about that part yet. Once confirmed I plan to sell some equity mutual funds to offset the K-1 loss. I don't want to carryover a large loss at $3000 per year for a decade...

 

[51togo]

I'm going to face the same thing next year after I sell my sisters house. I have listed it for less than appraised value (I also paid for a new appraisal), so I will have a capital loss on my 1041>K-1. I plan to hire a CPA to confirm but that's my understanding. I think I even read recently that the fees associated with selling the house add to the loss, but not sure about that part yet. Once confirmed I plan to sell some equity mutual funds to offset the K-1 loss. I don't want to carryover a large loss at $3000 per year for a decade...

@Midpack that was in the back of my mind last year, but it was such a mental drain after the sale of the house and divided the funds. I was relieved and just didn’t want to think about it, procrastinated into tax season. I got to figure out RMD as well as just 3 years to go for me. Main reason I think it will qualify as a loss is “Report the sale on Form 8949, which will transfer to Schedule D. Enter your basis in the property as your share of the fair market value (FMV) of the property on your mother’s date of death. Ex: The FMV was $150,000. You split it equally three ways. So, your share of the basis is $50,000.”

 

[51togo]

I agree that you could claim the $60K price difference as loss, and the related house fix-up costs, as well as selling fees; such that they all reduce the amount distributed to heirs from the appraised value. But since you already distributed house sale funds less the fix-up and selling fees, the only thing not accounted for is the $60K cap gain loss. So as cathy63 suggested, you need K-1s to be generated as part of the estate 1041. Then each K-1 recipient includes the $20K loss as offset against their personal income. Also concur with this being an area for professional tax help. If it was less than $60K you might just ignore it, but $20K for each heir could be a substantial tax deduction benefit.

My suggestion is keep the estate account open a little longer just in case something comes through late. Example: on my parent's estate which I was executor, there was a payment received related to a class action lawsuit against insurance company that was received probably 6 years after the estate was essentially closed and done. So had to do another 1041 for that year as well as open a new estate account since the check was made out to parent's names. Big hassle for $1000 payment, which was $333 for each heir.

Good idea @38Chevy454 I guess if I change my username would be 67Chevy327 lol!
Our splits were almost the same $1M divided by 3. Fit right into So Cal median price of $1M for a modest 3 bdrm house in a good location. Question would you be able to make the $1k payment under your own checking account ?
Would I still be able to do the K1 with the $10k withholding under the trust checking account? Thanks

 

[ncbill]

I faced the same situation for a relative where their house sold below market value appraisal.

So I distributed a capital loss to the beneficiaries via K1s.

 

[Slim11]

I tried that with my aunts estate and the trustee was an estate lawyer and they also had an additional accountant not related to the firm doing the taxes. They didnt bother with this. And the home sold for 120k under the appraised value , and we had 3 appraisals.

 

[Original Wally]

DW Molly and I are working through a similar issue with her sister. DSIL is in memory care. She has a couple of Federal Pensions: The BIG issue is that the Federal Government will NOT IN ANY WAY recognize a POA. PERIOD. So I am struggling to get enough info to file. IF I HAVE TO, will file with an EXPLANATION her ESTIMATED income (I will guess somewhat low) and Estimated Withholding (will estimate somewhat high) and wait for the letters to arrive and just send a check for the differences. Sigh.

 

[Midpack]

I faced the same situation for a relative where their house sold below market value appraisal.

So I distributed a capital loss to the beneficiaries via K1s.

Do you know if you could use that loss for tax loss harvesting using mutual fund sale LTCGs? I think so, but looking for a second opinion.

 

[cathy63]

Do you know if you could use that loss for tax loss harvesting using mutual fund sale LTCGs? I think so, but looking for a second opinion.

Yes. You report it on Sched D Line 12 where it gets combined with all your other long term transactions. It can also become a long term loss carryover for future years.

 

[51togo]

So I visited my CPA yesterday on my mom’s house. She confirmed that I may file K1 loss, $60k on appraisal vs sold price, realtors’ commissions $46k, $10k expenses on repair before sale. So total of $116k divided among three of us. She asked me to bring the escrow paperwork, appraisal doc, and expenses receipts. I need to have that filed before proceeding with my normal tax return. Will advise if any changes and details on rest of the paperwork. Thanks all!

 

[a60dan]

Mom passed on Dec. 24, 2024. There was a trust while I’m the trustee. There no other assets except the house. With the help with my Chase banker, I got an EIN number with that we listed and sold the house on July 2025. The house was sold for $1.03M and I kept $10k as reserve for any future bills while distributed remaining funds equally of about $330k after minus fee among my brother and sister. The house had an appraisal based on the deceased date 12-24-24 for $1.09M so $90k more than sold price.
Questions on my this year’s filing on K1. As I researching K1 is step up capital gain. Would I be required to file K1? If so would it be possible to claim capital loss as negative $90k and dividing the amount among us? There were also approximately $10k of fixing up the house before the sale, whether these expenses may be used? And lastly should I close the EIN number Chase account under my name / my mom’s trust name now as I see no more bills coming. She was living under SS with no other incomes.
I’ve post my earlier journey from mom gotten sick to the sale of the house. Her final gift to us were the trust and pre planned funeral. I think of her daily although the sale of the house etc was stressful still went smoothly which gave me closure and the experience of redoing my own trust. Thanks!

Double check the IRS Schedule K1 instructions bit my understanding is that gain or loss is reported on the K1 for each beneficiary as per their share of the trust.

The costs of selling per the closing statement (real estate commissions, etc. ) are also deducted from the gain or loss.