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Publication 559

Comprehensive Example(p27)

The following is an example of a typical situation. All figures on the filled-in forms have been rounded to the nearest whole dollar.
On April 9, 2017, your father, John R. Smith, died at the age of 72. He had not resided in a community property state. His will named you to serve as his executor (personal representative). Except for specific bequests to your mother, Mary, of your parents' home and your father's automobile and a bequest of $5,000 to his church, your father's will named your mother and his brother as beneficiaries.
After the court has approved your appointment as the executor, you should obtain an employer identification number for the estate. (See Duties under Personal Representatives, earlier.) Next, you use Form 56 to notify the Internal Revenue Service that you have been appointed executor of your father's estate.

Assets of the estate.(p27)

Your father had the following assets when he died.
Your mother also gave you a Form W-2, Wage and Tax Statement, that your father's employer had sent. In examining it, you discover that your father had been paid $11,000 in salary between January 1, 2017, and April 9, 2017 (the date he died). The Form W-2 showed $11,000 in box 1 and $23,000 ($11,000 + $12,000) in boxes 3 and 5. The Form W-2 indicated $845 as federal income tax withheld in box 2. The estate received a Form 1099-MISC from the employer showing $12,000 in box 3. The estate received a Form 1099-INT for your father showing he was paid $1,900 interest on his savings account at the First S&L of Juneville in 2017, before he died.

Final Return for Decedent—Form 1040(p28)

From the papers in your father's files, you determine that the $11,000 paid to him by his employer (as shown on the Form W-2), rental income, and interest are the only items of income he received between January 1 and the date of his death. You will have to file an income tax return for him for the period during which he lived. (You determine that he timely filed his 2016 income tax return before he died.) The final return isn't due until April 17, 2018, the same date it would have been due had your father lived during all of 2017.
The check representing unpaid salary and earned but unused vacation time wasn't paid to your father before he died, so the $12,000 isn't reported as income on his final return. It is reported on the income tax return for the estate (Form 1041) for 2017. The only taxable income to be reported for your father will be the $11,000 salary (as shown on the Form W-2), the $1,900 interest, and his portion of the rental income that he received in 2017.
Your father was a cash basis taxpayer and didn't report the interest accrued on the series EE U.S. savings bonds on prior tax returns that he filed jointly with your mother. As the personal representative of your father's estate, you choose to report the interest earned on these bonds before your father's death ($840) on the final income tax return.
The rental property was leased the entire year of 2017 for $1,000 per month. Under local law, your parents (as joint tenants) each had a half interest in the income from the property. Your father's will, however, stipulates that the entire rental income is to be paid directly to your mother. None of the rental income will be reported on the income tax return for the estate. Instead, your mother will report all the rental income and expenses on Form 1040.
Checking the records and prior tax returns of your parents, you find that they previously elected to use the alternative depreciation system (ADS) with the mid-month convention. Under ADS, the rental house is depreciated using the straight-line method over a 40-year recovery period. They allocated $15,000 of the cost to the land (which is never depreciable) and $75,000 to the rental house. Salvage value was disregarded for the depreciation computation. Before 2017, $23,359 had been allowed as depreciation. (For information on ADS, see Pub. 946.)


During the year, you received a bill from the hospital for $945 and bills from your father's doctors totaling $685. You paid these bills as they were presented. In addition, you find other bills from his doctors totaling $302 that your father paid in 2017 and receipts for prescribed drugs he purchased totaling $724. The funeral home presented you a bill for $6,890 for the expenses of your father's funeral, which you paid.
The medical expenses you paid from the estate's funds ($945 and $685) were for your father's care and were paid within 1 year after his death. They won't be used to figure the taxable estate so you can treat them as having been paid by your father when he received the medical services. See Medical Expenses under Final Income Tax Return for Decedent—Form 1041, earlier. However, you can't deduct the funeral expenses either on your father's final return or on the estate's income tax return. They are deductible only on the federal estate tax return (Form 706).
In addition, after going over other receipts and canceled checks for the tax year with your mother, you determine that the following items are deductible on your parents' 2016 income tax return.
Health insurance$4,250
State income tax paid1,391
Real estate tax on home3,100
Contributions to church3,830
Rental expenses included real estate taxes of $700 and mortgage interest of $410. In addition, insurance premiums of $260 and painting and repair expenses for $350 were paid. These rental expenses totaled $1,720 and are reflected on Schedule E (Form 1040).
Your mother and father owned the property as joint tenants with right of survivorship and they were the only joint tenants, so her basis in this property upon your father's death is $93,047. This is figured by adding the $60,000 value of the half interest included in your father's gross estate to your mother's $45,000 share of the cost basis and subtracting your mother's $11,953 share of depreciation (including 2017 depreciation for the period before your father's death), as explained next.
For 2017, you must make the following computations to figure the depreciation deduction.
  1. For the period before your father's death, depreciate the property using the same method, basis, and life used by your parents in previous years. They used the mid-month convention, so the amount deductible for 3 1/2 months is $547. (This brings the total depreciation to $23,906 ($23,359 + $547) at the time of your father's death.)
  2. For the period after your father's death, you must make two computations.
    1. Your mother's cost basis ($45,000) minus one-half of the amount allocated to the land ($7,500) is her depreciable basis ($37,500) for half of the property. She continues to use the same life and depreciation method as was originally used for the property. The amount deductible for the remaining 8 1/2 months is $664.
    2. The other half of the property must be depreciated using a depreciation method that is acceptable for property placed in service in 2017. You chose to use ADS with the mid-month convention. The value included in the estate ($60,000) less the value allocable to the land ($10,000) is the depreciable basis ($50,000) for this half of the property. The amount deductible for this half of the property is $886 ($50,000 × .01771). See chapter 4 and Table A-13 in Pub. 946.
Show the total of the amounts in (1) and (2)(a), above, on line 17 of Form 4562, Depreciation and Amortization. Show the amount in (2)(b) on line 20c. The total depreciation deduction allowed for the year is $2,097.

Filing status.(p28)

After December 31, 2017, when your mother determines the amount of her income, you and your mother must decide whether you will file a joint return or separate returns for your parents for 2017. Your mother has rental income and $400 of interest income from her savings account at the Mayflower Bank of Juneville, so it appears to be to her advantage to file a joint return.

Tax computation.(p28)

The illustrations of Form 1040 and related schedules appear near the end of this publication. These illustrations are based on information in this example. The tax refund is $769. The computation is as follows:
Salary (per Form W-2)$11,000 
Interest income3,140 
Net rental income8,183 
Adjusted gross income $22,323
Minus: Itemized deductions 13,553
Balance $8,770
Minus: Exemptions (2)  8,100
Taxable income $670
Income tax from tax table $66
Minus: Tax withheld $845
Refund of taxes $779

Income Tax Return of an Estate—Form 1041(p28)

The illustrations of Form 1041 and the related schedules for 2017 appear near the end of this publication. These illustrations are based on the information that follows.

2017 income tax return.(p28)

Having determined the tax liability for your father's final return, you now figure the estate's taxable income. You decide to use the calendar year and the cash method of accounting to report the estate's income. This return also is due by April 17, 2018.
In addition to the amount you received from your father's employer for unpaid salary and for vacation pay ($12,000) entered on line 8 (Form 1041), you received a dividend check from the XYZ Company on June 16, 2017. The check was for $750 and you enter it on line 2a (Form 1041). The amount is a qualified dividend and you show the allocation to the beneficiaries and the estate on line 2b. The amount allocated to the beneficiary ($179) is based on the distributable dividend income before any deductions. The estate received a Form 1099-INT showing $2,250 interest paid by the bank on the savings account in 2017 after your father died. Show this amount on line 1 (Form 1041).
In November 2017, you received a bill for the real estate taxes on your parents' home. The bill was for $2,250, which you paid. Include real estate taxes on line 11 (Form 1041).
You paid $1,325 for attorney's fees in connection with administration of the estate. This is an expense of administration and is deducted on line 14 (Form 1041). You must, however, file with the return a statement in duplicate that such expense hasn't been claimed as a deduction from the gross estate for figuring the federal estate tax on Form 706, and that all rights to claim that deduction on Form 706 are waived.
You made a distribution of $2,000 to your father's brother, James. The distribution was made from current income of the estate under the terms of the will.
The income distribution deduction ($2,000) is figured on Schedule B of Form 1041 and deducted on line 18 (Form 1041).
You characterized the $2,000 that is included in income and reported it on Schedule K-1 (Form 1041) as follows:
Step 1
Allocation of Income & Deductions
Type of
Net Income
$ 2,250(536)$ 1,714
Step 2
Allocation of Distribution

(Report on the Schedule K-1 for James)
Line 1 – Interest  
$2,000 × (1,714 ÷ 11,425)$300
Line 2b – Total dividends  
$2,000 × (571 ÷ 11,425)100
Line 5 – Other income 
$2,000 × (9,140 ÷11,425)1,600
Total Distribution$2,000
The estate took an income distribution deduction, so you must prepare Schedule I (Form 1041), regardless of whether the estate is liable for the alternative minimum tax.
The other distribution you made out of the assets of the estate in 2017 was the transfer of the automobile to your mother on July 1. This is included in the bequest of property, so it isn't taken into account in computing the distributions of income to the beneficiary. The life insurance proceeds of $275,000 paid directly to your mother by the insurance company aren't an asset of the estate.
Tax computation.(p29)
The taxable income of the estate for 2017 is $8,825, figured as follows:
Gross income:  
Income in respect of a decedent$12,000
Minus: Deductions and income distribution 
Real estate taxes$2,250 
Attorney's fee1,325 
Taxable income$8,825
The estate had taxable income of $8,825 which included $571 of qualified dividends for the year, which leaves the estate with a tax due of $1,962 for 2017.

2018 income tax return for estate.(p29)

On January 7, 2018, you receive a dividend check from the XYZ Company for $500. You also have interest posted to the savings account in January totaling $350. On January 28, 2018, you make a final accounting to the court and obtain permission to close the estate. In the accounting, you list $1,650 as the balance of the expense of administering the estate.
You advise the court that you plan to pay $5,000 to Hometown Church under the provisions of the will, and that you will distribute the balance of the property to your mother, the remaining beneficiary.
Gross income. (p29)
After making the distributions already described, you can wind up the affairs of the estate. The gross income of the estate for 2018 is more than $600, so you must file a final income tax return, Form 1041, for 2018 (not shown). The estate's gross income for 2018 is $850 (dividends $500 and interest $350).
After making the following computations, you determine that none of the distributions made to your mother must be included in her taxable income for 2018.
Gross income for 2018: 
Less deductions: 
Administration expense$1,650
Loss ($800)

Note that because the contribution of $5,000 to Hometown Church wasn't required under the terms of the will to be paid out of the gross income of the estate, it isn't deductible and wasn't included in the computation.
The estate had no distributable net income in 2018, so none of the distributions made to your mother have to be included in her gross income.


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Table A. Checklist of Forms and Due Dates For Executor, Administrator, or Personal Representative

Form No. Title Due Date**
SS-4 Application for Employer Identification Number As soon as possible. The identification number must be included in returns, statements, and other documents.
56 Notice Concerning Fiduciary Relationship As soon as all necessary information is available.*
706 United States Estate (and Generation-Skipping Transfer) Tax Return 9 months after date of decedent's death.
706-A United States Additional Estate Tax Return 6 months after cessation or disposition of special-use valuation property.
706-GS(D) Generation-Skipping Transfer Tax Return for Distributions Generally, April 15th of the year after the distribution.
706-GS(D-1) Notification of Distribution From a Generation-Skipping Trust Generally, April 15th of the year after the distribution.
706-GS(T) Generation-Skipping Transfer Tax Return for Terminations Generally, April 15th of the year after the taxable termination.
706-NA United States Estate (and Generation-Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States 9 months after date of decedent's death.
709 United States Gift (and Generation-Skipping Transfer) Tax Return April 15th of the year after the gift was made.
712 Life Insurance Statement Part I to be filed with estate tax return.
1040 U.S. Individual Income Tax Return Generally, April 15th of the year after death.**
1040NR U.S. Nonresident Alien Income Tax Return See form instructions.
1041  U.S. Income Tax Return for Estates and Trusts 15th day of 4th month after end of estate's tax year.**
1041-T Allocation of Estimated Tax Payments to Beneficiaries 65th day after end of estate's tax year.
1041-ES Estimated Income Tax for Estates and Trusts Generally, April 15th, June 15th, Sept. 15th, and Jan. 15th for calendar-year filers.**
1042 Annual Withholding Tax Return for U.S. Source Income of Foreign Persons March 15th.**
1042-S Foreign Person's U.S. Source Income Subject to Withholding March 15th.**
4768 Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes See form instructions.
4810 Request for Prompt Assessment Under Internal Revenue Code Section 6501(d) As soon as possible after filing Form 1040 or Form 1041.
4868 Application for Automatic Extension of Time To File U.S. Individual Income Tax Return April 15th.**
5495 Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905 See form instructions.
7004 Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns 15th day of 4th month after end of estate's tax year.**
8300 Report of Cash Payments Over $10,000 Received in a Trade or Business 15th day after the date of the transaction.
8822 Change of Address As soon as the address is changed.
8822-B Change of Address or Responsible Party — Business As soon as the address is changed.
* A personal representative must report the termination of the estate, in writing, to the Internal Revenue Service. Form 56 can be used for this purpose.
** If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day.
PencilTable B. Worksheet To Reconcile Amounts Reported in Name of Decedent on Information Returns (Forms W-2, 1099-INT, 1099-DIV, etc.)
Name of Decedent
Date of DeathDecedent's Social Security Number
Name of Personal Representative, Executor, or Administrator
Estate's Employer Identification Number (If Any)
(list each payer)

Enter total amount shown on information return

Enter part of amount in column A reportable on decedent's final return
Amount reportable on estate's or beneficiary's income tax return (column A minus column B)

Part of column C that is income in respect of a decedent
1. Wages    
2. Interest income    
3. Dividends    
4. State income tax refund    
5. Capital gains    
6. Pension income    
7. Rents, royalties    
8. Taxes withheld*    
9. Other items, such as social security, business and farm income or loss, unemployment compensation, etc.    
* List each withholding agent (employer, etc.)