Does an estate (1041) get to deduct real estate commissions when selling a personal residence?
I'm dealing with my late mother's estate and we sold her home last December for $395k. I understand there's a stepped up cost basis to the Fair Market Value at the date of death, which was also around $395k, so our capital gain should be zero. My question involves the expenses we incurred during the sale - specifically around $27k in real estate commissions and attorney fees. Can these expenses create a loss on the 1041 estate tax return? I know that on a personal 1040, losses from selling a primary residence can't be deducted, but does that same rule apply to an estate? Can these selling expenses be deducted and passed through to the estate beneficiaries? This is my first time being an executor and I want to make sure I'm handling the tax implications correctly. The attorney who's helping with the estate suggested I look into this specifically.
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Camila Jordan
The sale of your mother's home by her estate is indeed reported on Form 1041 (the estate's income tax return), not on your personal return. Here's how it works: You're correct about the stepped-up basis - the property's basis is the fair market value at the date of death, so with a sale price equal to that FMV, there's no gain. For the selling expenses (commissions and attorney fees), these are considered selling expenses that reduce the amount realized from the sale. So technically, with a $395k FMV/basis and $27k in selling expenses, the estate would have a $27k loss. However, even on a 1041, the tax code generally doesn't allow deductions for losses on the sale of personal-use property, including a personal residence. IRC Section 165 limitations still apply. The expenses reduce any potential gain, but generally can't create a deductible loss that passes through to beneficiaries.
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Tyler Lefleur
•Wait, I'm a bit confused. So if I'm in a similar situation but the house appreciated between death and sale (about $50k more than the death valuation), would the selling expenses offset that gain? Or are you saying they wouldn't be deductible at all?
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Camila Jordan
•Yes, selling expenses would absolutely offset a gain in your situation. If the property was valued at death at a certain amount and then sold for $50k more, the selling expenses would reduce that $50k gain. For example, if the house was worth $400k at death, sold for $450k, and you had $25k in selling expenses, your net gain would be $25k ($450k - $400k - $25k). The estate would pay tax on that $25k gain (or it would pass to beneficiaries via the K-1). The selling expenses are always used to reduce gain, but they typically can't create a loss that's deductible when it's a personal residence.
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Madeline Blaze
I used taxr.ai for exactly this situation last year when handling my father's estate! I had all the closing documents and wasn't sure how to handle the commissions and fees. I uploaded them to https://taxr.ai and their AI analyzed everything and explained exactly how to report it on the 1041. Saved me hours of research and probably an expensive call to the estate attorney. They specifically addressed the stepped-up basis and selling expenses question.
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Max Knight
•Did it actually help with filling out the specific forms? I'm dealing with my grandmother's estate now and have the same question about selling expenses. Did it give you the actual line numbers where to report everything?
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Emma Swift
•I'm skeptical of these AI tax tools. How does it know the specific rules for estate taxation? Did you verify the information with a real accountant afterward?
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Madeline Blaze
•Yes, it gave me the exact form lines where everything should be reported. It specifically showed where to put the sales price and adjusted basis on Form 8949 and how that flows to Schedule D of the 1041. It even explained which boxes to check for the basis being reported to the IRS. The information was spot on. I did actually confirm with our estate attorney who said it was handled correctly. The nice thing was having the explanation in plain English before talking to the attorney, so I actually understood what she was saying when we discussed it. It covered the specific estate tax rules about the stepped-up basis and selling expenses.
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Emma Swift
I have to admit I was wrong about these AI tools. After my skeptical question above, I tried taxr.ai with my grandmother's estate documents. It correctly identified that the selling expenses should reduce the amount realized from the sale, but couldn't create a deductible loss since it was a personal residence. It even cited the specific IRS regulations that applied to my situation. Honestly saved me from making a mistake on the estate return and potentially dealing with an amendment later.
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Isabella Tucker
If you're dealing with an estate tax issue like this, you might need to talk directly with the IRS to get a definitive answer. I tried for WEEKS to get through to someone who could answer my question about estate basis issues. Finally used https://claimyr.com and they got me a callback from the IRS in about 20 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent was super helpful and confirmed that while selling expenses reduce the amount realized, they can't create a deductible loss on a personal residence even on a 1041.
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Jayden Hill
•How does that service even work? The IRS phone system is notoriously impossible to navigate. Are you saying this somehow jumps the queue or something?
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LordCommander
•Yeah right. Nobody gets through to the IRS in 20 minutes. I've been on hold for 3+ hours multiple times this year trying to resolve estate tax issues. This sounds like a scam that's just going to take your money and leave you hanging.
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Isabella Tucker
•It uses an automated system that navigates the IRS phone tree and holds your place in line. When an agent is about to pick up, you get a call connecting you to them. No queue jumping - it just does the waiting for you so you don't have to keep your phone tied up for hours. For estate tax questions like this one, I specifically needed someone from the estate tax department. The Claimyr system got me to the right department and I was able to confirm that selling expenses reduce the amount realized but can't create a deductible loss on a personal residence even for an estate. The agent referenced the same IRC Section 165 rules mentioned above.
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LordCommander
I stand corrected about Claimyr. After my skeptical comment, I was desperate enough to try it for an estate tax issue I couldn't resolve. Got a callback from the IRS in about 30 minutes and finally got my question answered about basis reporting for estate assets. The agent even sent me the specific publication sections I needed. Saved me from taking a potentially problematic position on the 1041 that might have triggered an audit. Worth every penny not to sit on hold for hours.
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Lucy Lam
In my experience as an executor, the selling expenses related to your mom's house would reduce the sales proceeds, potentially creating a loss, but as others have mentioned, that loss generally isn't deductible on the 1041. However, check if any of those expenses might qualify as administrative expenses of the estate. Some attorney fees related to estate administration (rather than just the house sale) can be deductible as administrative expenses on the 1041.
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Alexis Renard
•Thanks for this insight. How would I determine which portion of the attorney fees count as administrative expenses versus just being related to the house sale? Our attorney sent one bill that covered multiple aspects of the estate.
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Lucy Lam
•Ask your attorney to provide an itemized bill that separates the estate administration services from the house sale services. Administrative expenses for managing the estate are generally deductible on the 1041 (look at the "Other Deductions" section). Attorney fees specifically for selling the house are considered selling expenses that reduce the amount realized from the sale, but as we've discussed, they can't create a deductible loss if it's a personal residence. If the attorney can reasonably allocate their time between these functions, you might be able to deduct at least a portion of the fees.
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Aidan Hudson
Small but important point: make sure you're filing the 1041 on time. We had to get extensions because the house sale took longer than expected. Also, did your mom live in the house for at least 2 of the last 5 years before her death? Just wondering if the $250k exclusion might apply on the estate return.
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Zoe Wang
•The $250k exclusion doesn't transfer to the estate - it dies with the person. That's why the stepped-up basis is so important. The property gets a new basis equal to FMV at death, which usually wipes out any built-in gain anyway.
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NebulaNomad
Just wanted to add my experience from handling my uncle's estate last year. We had a very similar situation - house worth about $400k at death, sold for $398k, with $24k in selling expenses. The key thing I learned is that you need to be very careful about how you report this on the 1041. Even though mathematically it looks like a $26k loss, the IRS doesn't allow you to deduct losses on personal residences even for estates. The selling expenses do reduce the amount realized, but they can't create a deductible loss that flows through to beneficiaries. What I did was report the sale on Form 8949 attached to Schedule D of the 1041, showing the stepped-up basis as the cost basis and the net proceeds (after selling expenses) as the sales price. This resulted in a $0 gain/loss for tax purposes. One thing that helped me was keeping very detailed records of all the selling expenses - not just the realtor commission but also staging costs, minor repairs, attorney fees specific to the sale, etc. Even though they don't create a deductible loss, they do reduce any potential gain if the house had appreciated. Make sure your estate attorney can separate out any fees that were for general estate administration versus the house sale specifically, as those might be deductible as administrative expenses on a different part of the return.
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Aiden O'Connor
•This is incredibly helpful! I'm just starting to navigate this process and your detailed breakdown really clarifies how to handle the reporting. The point about keeping detailed records of all selling expenses is something I hadn't fully considered - we had some minor repair costs and cleaning expenses that I wasn't sure whether to include. Your mention of Form 8949 and Schedule D is exactly what I needed to know. Did you end up needing to file any additional forms beyond the standard 1041 package for the house sale? I'm trying to make sure I don't miss anything since this is my first time as an executor. Also, when you say the selling expenses "reduce the amount realized" - does that mean I subtract them from the $395k sale price when reporting on Form 8949, so I'd show something like $368k as the proceeds?
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Isabella Martin
•@Aiden O'Connor Yes, exactly right on the reporting! You subtract the selling expenses from the gross sale price when reporting the proceeds. So if you sold for $395k with $27k in expenses, you'd report $368k as the amount realized on Form 8949. For forms beyond the standard 1041 package, you'll definitely need Form 8949 and Schedule D attached to the 1041. If the estate has other assets or income, you might need additional schedules, but for just the house sale, those two should cover it. One thing I forgot to mention in my original post - make sure you get the estate's EIN if you haven't already, since the 1041 requires it. Also, depending on your state, there might be state-level estate tax implications to consider alongside the federal return. The IRS wants to see the stepped-up basis (fair market value at death) in the cost basis column, and the net proceeds (after selling expenses) in the proceeds column. This usually results in either a small gain, small loss, or break-even situation that gets reported as $0 since personal residence losses aren't deductible.
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Atticus Domingo
I went through this exact scenario when settling my father's estate two years ago. One additional consideration that hasn't been mentioned yet - if your mother's estate is large enough to require filing Form 706 (federal estate tax return), the treatment of the home sale might have some additional implications for the estate tax calculation. Also, since you mentioned this is your first time as executor, make sure you're aware of the timing requirements. The 1041 is generally due by the 15th day of the 4th month after the estate's tax year ends (typically April 15th if using a calendar year). You can request extensions, but there are specific procedures to follow. One practical tip: if you haven't already, consider opening a separate estate checking account if the proceeds from the home sale will be sitting in the estate for any period of time. Any interest earned would be taxable income to the estate and need to be reported on the 1041. The stepped-up basis rule you mentioned is indeed your friend here - it essentially resets the property's cost basis to the date-of-death value, which typically eliminates most capital gains on inherited property. This is one of the key tax benefits of inherited assets versus gifted assets.
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Mateo Warren
•This is really comprehensive advice! I'm curious about the Form 706 implications you mentioned. My mother's estate is probably right around the federal exemption threshold. If we do need to file Form 706, would the selling expenses be treated differently there compared to the 1041? Also, thank you for the reminder about the estate checking account - I hadn't thought about the tax implications of any interest earned on the proceeds while we're distributing assets to beneficiaries. That's exactly the kind of detail that could bite someone who's new to this process. The timing point is crucial too. We're already in January and I'm still gathering all the necessary documents. Should I be looking at filing for an extension now, or is there still enough time to get everything together by April 15th?
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