Question

Paul, the executor of his brother Carson’s estate, sold his brother’s auto collection for $15 million to pay for the expenses of the estate. The proceeds were used to pay selling expenses of the auction house, Carson’s debts, taxes, estate preservation, and expenses for estate administration. The $3.75 million selling expense was allocated as follows: $1.75 million to debts, $1.4 million to taxes, $350,000 to estate preservation, and $250,000 to estate administration. How much of the $3.75 million expense for selling the property of the estate is deductible?

Answer 1

Under Estate tax return Form 706, some of the Non-discretionary Deductions and Discretionary Deductions are allowed to be deducted from the Gross Estate of the tax payer.

Non-discretionary Deductions are as follows:

(1) Medical expenses (paid or payable within 1 year)

(2) Administrative expenses for admnistrating and settling the estate (paid or payable within 1 year)

(3) Funeral Costs

(4) Liabilities of Estate - Debts outstanding and any claims against the estate

(5) State death taxes

Discretionary Deductions are as follows:

(1) Charitable deduction

(2) Marital deduction

Therefore, from the above explanation, we can say that following expenses are deductible from selling the property of the estate:

Particulars	Amount
Outstanding debts	$ 1,750,000
Taxes (Refer Note)	$ 1,400,000
Estate preservation	NIL
Estate administration	$ 250,000
Total deductible expenses	$ 3,400,000

Note: It is assumed that taxes paid by the executor are state death taxes.