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Recently we received a statement from the executor of a will for a deceased family member. It stated there was a capital loss carry over and they provided a fidicuary form 1041 K-1 worksheet dated fiscal year May 2, 2002 to April 30, 2003. This was issued to my wife (we married 03/2003).

Can anyone tell me what forms I need to file. The long term capital loss is $8546, which probably means I have to restate a few years of income... I am looking for some guidance on what I need to restate, and how I restate it.

My guess is I find a 2002 addendum form, add $3000 capital loss to the worksheet. Find a 2003 form, add $3000 capital loss to the worksheet, in 2004 add $2546 to the original filing. Would this be correct?

And does this happen often?

Thanks a bunch,

This happens, but there are some unusual aspects to your situation. First, the executor of the estate should have filed the 1041 and sent you the K-1 for the tax year ending 4/30/03 by August 15, 2003 (somewhat later if an extension was applied for) but certainly not "recently".

What you need to do is file amended 2003 (not 2002) federal and state income tax returns. Income from an estate is considered "received" and taxable on the closing date of the estate's fiscal year (4/30/03). Include the various amounts from the Schedule K-1 (assuming there's more than just the long-term loss) on the appropriate forms and schedules of the tax returns. If you had no other capital gains or losses on your original 2003 return, your taxable income should be lowered by approximately $3000. You will have to complete the capital loss carryforward worksheet (I forget where it's hidden these days, either in the Schedule D instructions or in IRS Pub. 550) to determine how much of the loss to carryforward to your 2004 tax returns (probably $5546, but dependent on other amounts on your 2003 tax return). You will repeat this process each year until the capital loss is used up.

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