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Tax Law (Questions About Taxes)/Income Taxes on My Dad's Estate


QUESTION: Hi Mr. Stancil,
The estate's 1041 consists of $8,770 income from a stock close-out and a $1,884 property tax expense. I started an on-line return with TaxAct and it determined that the estate owes Fed tax of $1,500. If this sounds reasonable to you, I will go ahead and file; if not, I will meet with a CPA.
My only other concern is the K1 forms generated both for my brother and for myself. My confusion is: Does the $1,500 payment to the IRS take care of the taxes, or must we add the $'s we receive ($4,385 each) to our own 1040's for further taxation?

ANSWER: Bernice,

Thanks for your question.

The amount of tax is probably high.

1. You can probably save some tax dollars by making a deemed distribution and letting the beneficuaries pay the tax. Individuals usually pay a lower rate.

2.  In addition, you may be showing too much income. You should pay tax on the gain from the sale of stock - proceeds from the sale minus cost basis. Basis is the fair market value as of date of death.

3. And it will be a long term capital gain taxed at a lower rate.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Thanks so much for the very speedy response, Mr. Stancil.

I'm afraid I'm ignorant on the process of making a deemed distribution. Do I do something other than file a 1041/K1?

As for #2, I thought the cost basis was zero since the stock was issued to my parents as dividends for their 50-year life insurance policy.

If the basis is the FMV at time of death, does it mean anything that that value was $1K more than when it was closed out 4 months later?


Actually it is probably too late to make a deemed distribution. The actual distribution must occur within 65 days of the end of the tax year. If you did that just treat the distribution as having occurred on the last day of the tax year. Heirs pay the tax, not the estate in this case. Show it all on the 1041 and k-1.

Cost basis was zero until it was inherited, then it went to FMV. If it went down when sold, you have a loss.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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