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I am preparing a decedents 1041 trust return for 2012. 2013 will be the final year. Real Estate was sold in 2012 at a loss - but the FTB of California withheld 12K anyways. If I claim the 12K as a tax payment (deduction) on the 1041 - it will reduce taxable income to zero. No income passed to beneficiaries. However - I think it will cause taxable income in 2013 when the trust gets the refund. Is this correct thinking?
The only income on the return is 10K in interest and the $3K loss on the property.
Can I make the choice to take the taxes paid deduction - even when I know it is going to be refunded?
If I pass the income to the Heirs on the K-1 - they will also get their share of the 12K state withholding on their K1 for the state.
The other complication to this is one of the heirs is a special needs trust for a disabled adult. I was trying to avoid creating income for the SNT.
The only income on the return is 10K in interest and the $3K loss on the property.
Can I make the choice to take the taxes paid deduction - even when I know it is going to be refunded?
If I pass the income to the Heirs on the K-1 - they will also get their share of the 12K state withholding on their K1 for the state.
The other complication to this is one of the heirs is a special needs trust for a disabled adult. I was trying to avoid creating income for the SNT.
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Tax Professional Answers
William Keats
For 2012: The $10,000 interest is the income for the 1041. Losses on a person residence are not deductible. Take the $12,000 tax withheld as a deduction Ignore the fact that the $12,000 will be refunded in 2013. No taxable income for 2012.
For 2013: The $12,000 refund will be income on the Final 1041. I do not see how you can avoid creating income for the SNT if the trust is an heir.
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560 weeks ago
For 2013: The $12,000 refund will be income on the Final 1041. I do not see how you can avoid creating income for the SNT if the trust is an heir.