Deductible Expenses on Form 1041 for Estate Administration

Thanks for the info. What about property taxes we've had to pay while waiting for the house to sell? And do we need to file the 1041 if the estate earned less than $600 in interest income?

Property taxes on the estate property are absolutely deductible as administration expenses while the estate owns the property. They're considered necessary expenses for maintaining and preserving estate assets. For your second question, you generally don't need to file Form 1041 if the estate's gross income is less than $600 in a tax year. However, there are exceptions - for example, if you have a beneficiary who is a nonresident alien. Also, some executors file anyway to establish the estate's income and deductions, even below the $600 threshold.

How does it handle the distinction between repairs and improvements? I'm the executor for my brother's estate and not sure if replacing part of a fence would count as a repair or improvement.

Does it really work with estate taxes specifically? Most tax software I've tried doesn't handle estates well at all. Can it actually fill out the 1041 or just help with organizing?

For repairs versus improvements, it applies the same rules the IRS uses - basically repairs maintain the property while improvements add value or extend useful life. In your fence example, it would analyze whether you're replacing a section (repair) or upgrading/extending it (improvement). It gives you a clear explanation either way. It's specifically designed to handle estate taxation including Form 1041. It doesn't file the form for you, but it organizes everything correctly and provides detailed guidance on how to complete each section. It identified several estate-specific deductions I would have missed otherwise and explained all the special rules that apply to estates.

How does Claimyr actually work? Do they just call the IRS for you? Seems like something I could just do myself with enough patience.

Yeah right. There's no way to get through to the IRS that quickly. I've been trying for MONTHS to resolve an issue with my mom's estate. Sounds like marketing nonsense to me.

They don't call for you - they use some tech that navigates the IRS phone system and holds your place in line, then calls you when an agent is about to answer. You speak directly with the IRS yourself. It's like having someone wait on hold for you, which saved me literally hours. I was super skeptical too! I'd spent over 6 hours across 3 days trying to get through myself with no luck. This got me connected in about 20 minutes. I think they work with the IRS phone system somehow to monitor wait times and call patterns. All I know is it worked when nothing else did, and I got my estate tax questions answered directly from an IRS agent.

So where do you report capital improvements then? Do they just increase the basis of the property when you sell it?

Yes, capital improvements increase the basis of the property rather than being deducted as expenses on Form 1041. When the estate sells the property, these improvements reduce the taxable gain (or increase the loss) on the sale. For example, if the estate bought the house years ago for $200,000 and made $30,000 in capital improvements, the adjusted basis would be $230,000. If it's sold for $300,000, the taxable gain would be $70,000 instead of $100,000.

What about executor fees? I've been managing my uncle's estate and spending tons of time on it. Can I pay myself a reasonable fee and deduct that on the 1041?

Yes, executor fees are generally deductible on Form 1041 as administration expenses! You can pay yourself a reasonable fee for your time and services as executor, and then deduct that amount on Schedule C. The key is that the fee must be "reasonable" - it should be comparable to what you'd pay a professional executor or estate administrator for similar services. Most states have guidelines or statutes about reasonable executor compensation (often a percentage of the estate value), so check your state's rules. Just make sure to document the work you're doing and keep records of the time spent. The executor fee is income to you personally, so you'll need to report it on your own tax return, but the estate gets the deduction.

That's really helpful advice about the spreadsheet - I wish I had thought of that earlier! I've been keeping receipts in a shoebox but organizing them by category would make filling out the 1041 so much easier. Quick question about the property insurance - does that include any additional coverage I might have added specifically for the vacant property? The insurance company recommended extra liability coverage since the house was going to be empty for months while we prepped it for sale.

Yes, additional vacant property insurance coverage would definitely be deductible as an administration expense! That's actually a really smart move - vacant properties have different risk profiles and most standard homeowner policies don't provide adequate coverage when a house is unoccupied for extended periods. Since you added that coverage specifically to protect the estate's asset while preparing it for sale, it falls squarely under "ordinary and necessary" expenses for estate administration. The extra liability coverage is especially important because you have a fiduciary duty to protect estate assets, and proper insurance is part of that responsibility. Just make sure to keep the insurance policy documents and payment records with your other estate paperwork. If the IRS ever questions it, you can easily show that the additional coverage was a prudent step to protect the estate's property during the administration process.

This is such valuable advice about the timing issue! I hadn't really thought about when exactly the expenses stop being deductible for the estate. That stepped-up basis point is really important too - I definitely need to get that professional appraisal done sooner rather than later. Quick question about the savings bond interest - does it matter when the bonds were purchased versus when they mature or get cashed in? My dad had some older bonds that are still earning interest, and I'm not sure if I need to report the accrued interest from before his death or just what accumulates after. Also, did you end up having any issues with the IRS review you mentioned? I'm trying to be as thorough as possible with documentation to avoid any headaches down the road.