InstantForum.NET v4.1.4California Society of CPAshttp://forums.calcpa.org/forums@calcpa.orgSat, 20 Mar 2010 14:56:37 GMT20http://forums.calcpa.org/Topic810-2-1.aspxI've found this to be an interesting topic. If you have RIA, look at I-4500 and following, and you will see many taxpayer fights with the IRS over the question of conversion from personal to income producing. I haven't encountered a situation like yours, in which the surviving spouse is still alive, but not living in the prior residence when the spouse died. I do recall one case in a common law state in which the surviving spouse was allowed the loss on jointly owned property.Fri, 11 Sep 2009 23:42:39 GMTJohn Jacobsonhttp://forums.calcpa.org/Topic810-2-1.aspxThank you for your posts. I am probably not explaining this very well because perhaps I am confused.</P><P>Yes Mary Kay, you are correct. The applicable dates are:</P><P>Wife died 5/2/2007, her share of the revocable trust became irrevocable and a 645 election was filed. A house (not the principal residence) was sold 9/14/07 and the proceeds retained by the trust estate. The house was the prior, unoccupied principal residence of the couple and listed on the market at the time. The selling price was deemed to represent fair market value and the selling expenses is what generated the "loss". The property was not used by the decedent, surviving spouse, or estate and I think would be deemed investment property in the hands of the trust estate. Right?</P><P>Form 1041 was filed for the wife's estate initial year ended 4/30/2008.</P><P>Husband died 10/25/08 and I intend to file a 645 election for his survivor trust.</P><P>Except for the credit trust portion of the wife's trust estate the husband was the only beneficary of her trust estate. The two children are the only beneficaries of the wife's credit trust and the husband's survivor trust.</P><P>No distributions have been made to the children as they are squabbling. The husband may have received "indirect distrubitions" in the form of rent and medical expenses paid from the trust bank account as he was a resident of an adult care facility for the entire time.</P><P>Hayden WilliamsFri, 11 Sep 2009 15:13:46 GMTHWilliamshttp://forums.calcpa.org/Topic810-2-1.aspxCorrect. I am curious about Mr. Williams' theory, if the surviving spouse remains the indirect present beneficiary of the decedent's half of the terminating trust.Fri, 11 Sep 2009 11:11:12 GMTJohn Jacobsonhttp://forums.calcpa.org/Topic810-2-1.aspxI'm getting confused on these facts. This is what I think happened. One spouse died, his share of the revocable trust became irrevocable and a 645 election was filed. Now the 645 period has ended and there is an ongoing trust (called revocable as part of the name, but actually irrevocable.) A residence (not the principal residence was sold) owned one-half by the trust and one-half by the survivor's trust (still revocable). The survivor's half would be a nondeductible personal loss. The question is, can the loss on the other half be deducted because it is an investment for the ongoing (now calendar year) trust.</P><P>Is that what you're asking?Fri, 11 Sep 2009 09:30:15 GMTMary Kay Fosshttp://forums.calcpa.org/Topic810-2-1.aspxI assume that the residence was not part of the first distribution from the terminating trust to the survivor's trust.<br><br>But if the surviving spouse is the present beneficiary of all trusts, what theory did you use for the loss?Thu, 10 Sep 2009 20:35:21 GMTJohn Jacobsonhttp://forums.calcpa.org/Topic810-2-1.aspxPlease see my post dated 6/1/2009 regarding administration expenses and your reply. </P><P>As an update:</P><P>The Section 645 election was approved by the IRS. At least I received a letter stating that no future returns were required for the terminating (continuing) trust.</P><P>The Marital Trust was funded effective 2/18/09 with non-prorata partial interests in several rental LLCs.</P><P>The Credit Trust was funded effective 5/2/07 with a note payable from the estate.</P><P>To clarify, I included ALL of the income and deductions of the terminating (continuing) family trust on the estate Form 1041 for the initial year ended 4/30/08 as I overlooked the fact that the the Sec 645 Election is only effective for the decedent's one-half. This included a loss on the sale of a residence (not the principal residence). I believe I need to amend the surviving spouse's 2007 Form 1040 to include his share of the income and deductions and the estate Form 1041 for the year ended 4/30/08 to include only the estate's one-half. My thought is that the one-half of the loss on the residence applicable to the surviving spouse is a non-deductible capital loss even though it was sold by the estate. It would be good if I am incorrect.Tue, 08 Sep 2009 22:08:39 GMTHWilliamshttp://forums.calcpa.org/Topic810-2-1.aspxPlease tell us more about what you mean by "continuing revocable trust?"Mon, 07 Sep 2009 19:52:32 GMTJohn Jacobsonhttp://forums.calcpa.org/Topic810-2-1.aspxI have a first-to-die estate with a Section 645 Election in place for a continuing revocable trust. I understand the surviving spouse's 1/2 is still considered a revocable, grantor trust. The surviving spouse is a resident of an adult care facility. I think that I am correct that the surviving spouse's share is reported on his Form 1040. Does the surviving spouse's share of the loss on a residence sold by the trust estate get reported on the surviving spouse's Form 1040 as a non-deductible capital loss?Mon, 07 Sep 2009 09:43:54 GMTHWilliams