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Recapture and Household Employee Taxes for a Decedent, Estate, or Trust

When you file taxes for a decedent, estate, or trust, you may have to pay recapture taxes or household employee taxes. Recapture and household employee taxes are included on Schedule G of Form 1041. For recapture taxes, you may need to complete Form 4255, Recapture of Investment Credit or Form 8611, Recapture of Low-Income Housing Credit. For household employee taxes, you may have to complete Schedule H (Form 1040), Household Employment Taxes.

Even if you manage to reduce the estate, trust, or decedent’s income tax liability to zero with a combination of deductions and credits, you may still have taxes to pay. Lines 5 and 6 of Schedule G, Form 1041 are where you find these additional taxes. Although these taxes are not really income taxes, they are included on the income tax form.

Recapture taxes

Sometimes you receive a credit in a prior year, and then, in the current year, you find you’re no longer eligible for it.

For example, say you purchased a hybrid car last year and then found out this year that you aren’t entitled to a credit for that car. Welcome to the world of recapture taxes, which recapture tax benefits that the IRS didn’t want to let slip away. Complete Form 4255, Recapture of Investment Credit or Form 8611, Recapture of Low-Income Housing Credit, and then fill in the total on line 5, Schedule G.

Recapture taxes are a fairly technical area. If you suspect you may be subject to them, you may want to check in with a qualified tax advisor for assistance.

Household employee taxes

When a trust pays for household help for a beneficiary, or an estate pays the final wages of the decedent’s household help, you may have to complete and file Schedule H (Form 1040), Household Employment Taxes. This form is fairly self-explanatory. Put the total household taxes calculated on Form 1041, Schedule G, line 6.

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