Cautlon. This publication is not revised annually. Future changes to the forms and their instructions may not be reflected in this example.
On December 15, 1994, Thomas Smith filed a bankruptcy petition under chapter 7. Joan Black was appointed trustee to administer the estate and to distribute the assets.
The estate received the following assets from Mr. Smith:
A $100,000 certificate of deposit,
Commercial rental real estate with a fair market value of $280,000, and
His personal residence with a fair market value of $200,000.
Also, the estate received a $251,500 capital loss carryover.
Mr. Smith's bankruptcy case was closed on December 31, 1995. During 1995, Mr. Smith was relieved of $70,000 of debt by the court. The estate chose a calendar year as its tax year. Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return.
Schedule B (Form 1040). The certificate of deposit earned $5,500 of interest during 1995. Joan reports this interest on Schedule B. She completes this schedule and enters the result on Form 1040.
Form 4562. Joan enters the depreciation allowed on Form 4562. She completes the form and enters the result on Schedule E.
Schedule E (Form 1040). The commercial real estate was rented through the date of sale. Joan reports the income and expenses on Schedule E. She enters the net income on Form 1040.
Form 4797(Page 1, Page 2). The commercial real estate was sold on July 1, 1995, for $280,000. The property was purchased in 1983 at a cost of $250,000. It was depreciated using straight line depreciation and the total depreciation allowed or allowable as of the date of sale was $120,000. Additionally, $25,000 of selling expenses were incurred. She reports the gain or loss from the sale on Form 4797. She completes the form and enters the gain on Schedule D (Form 1040).
Form 2119. Mr. Smith's former residence was sold on September 30, 1995. The sale price was $200,000, the selling expenses were $20,000 and his adjusted basis was $130,000. Joan enters this information on Form 2119. Joan completes Form 2119 and enters the gain on Schedule D (Form 1040).
Schedule D (Form 1040). Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 1994 ($251,500 transferred to the estate minus $1,500 used on the estate's 1994 return). She enters the results on Form 1040.
Form 1040, Page 1. Joan completes page 1 of the 1040 and enters the adjusted gross income on the first line of Form 1040, page 2.
Schedule A (Form 1040). During 1995, the estate paid mortgage interest and real property tax on Mr. Smith's former residence. It also paid income tax to the state. Joan enters the mortgage interest, real estate tax and income tax on Schedule A. Also, she reports the estate's administrative expenses as a miscellaneous deduction subject to the 2% floor. She completes the Schedule A and enters the result on page 2 of Form 1040.
Form 1040, Page 2. Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. She then enters the estate's estimated tax payments and figures the amount the estate still owes.
Form 982 (Page 1, Page 2). Joan completes the Schedule D worksheet for capital loss carryover. Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. See Debt Cancellation. In 1996, Thomas Smith (the individual) will assume the estate's tax attributes. Mr. Smith will assume a capital loss carryover of $3,500 ($73,500 carryover minus the $70,000 attribute reduction).
Form 1041. Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. She completes the identification area at the top of Form 1041, then signs and dates the return.
- Responsibilities of the Individual Debtor
- Election to End Tax Year
- The Bankruptcy Estate
- Return Requirements and Payment of Tax
Information courtesy of the Internal Revenue Service.