Specific Instructions

Table of Contents

Name of Estate or Trust

Copy the exact name of the estate or trust from the Form SS-4, Application for Employer Identification Number, that you used to apply for the EIN. If the name of the trust was changed during the tax year for which you are filing, enter the trust's new name and check the Change in trust's name box in item F.

If a grantor type trust (discussed later), write the name, identification number, and address of the grantor(s) or other owner(s) in parentheses after the name of the trust.

Name and Title of Fiduciary

Enter the name and title of the fiduciary. If the name entered is different than the name on the prior year's return, see Change in Fiduciary's Name and Change in Fiduciary, later.

Address

Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the fiduciary has a P.O. box, show the box number instead.

If you want a third party (such as an accountant or an attorney) to receive mail for the estate or trust, enter on the street address line “C/O” followed by the third party's name and street address or P.O. box.

If the estate or trust has had a change of address (including a change to an “in care of” name and address) and did not file Form 8822-B, Change of Address or Responsible Party — Business, check the Change in fiduciary's address box in item F.

If the estate or trust has a change of mailing address (including a new "in care of" name and address) or responsible party after filing its return, file Form 8822-B to notify the IRS of the change.

A. Type of Entity

Check the appropriate box(es) that describes the entity for which you are filing the return.

In some cases, more than one box is checked. Check all boxes that apply to your trust. For example, if only a portion of a trust is a grantor type trust or if only a portion of an electing small business trust is the S portion, then more than one box is checked.

Note.

Determination of entity status is made on an annual basis.

There are special reporting requirements for grantor type trusts, pooled income funds, electing small business trusts, and bankruptcy estates. See Special Reporting Instructions, earlier.

Decedent's Estate

An estate of a deceased person is a taxable entity separate from the decedent. It generally continues to exist until the final distribution of the assets of the estate is made to the heirs and other beneficiaries. The income earned from the property of the estate during the period of administration or settlement must be accounted for and reported by the estate.

Simple Trust

A trust may qualify as a simple trust if:

  1. The trust instrument requires that all income must be distributed currently;

  2. The trust instrument does not provide that any amounts are to be paid, permanently set aside, or used for charitable purposes; and

  3. The trust does not distribute amounts allocated to the corpus of the trust.

Complex Trust

A complex trust is any trust that does not qualify as a simple trust as explained above.

Qualified Disability Trust

A qualified disability trust is any nongrantor trust:

  1. Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who is disabled, and

  2. All the beneficiaries of which are determined by the Commissioner of Social Security to have been disabled for some part of the tax year within the meaning of 42 U.S.C. 1382c(a)(3).

A trust will not fail to meet item 2 above just because the trust's corpus may revert to a person who is not disabled after the trust ceases to have any disabled beneficiaries.

ESBT (S Portion Only)

The S portion of an ESBT is the portion of the trust that consists of S corporation stock and that is not treated as owned by the grantor or another person. See Electing Small Business Trusts (ESBTs), earlier, for more information about an ESBT.

Grantor Type Trust

A grantor type trust is a legal trust under applicable state law that is not recognized as a separate taxable entity for income tax purposes because the grantor or other substantial owners have not relinquished complete dominion and control over the trust.

Generally, for transfers made in trust after March 1, 1986, the grantor is treated as the owner of any portion of a trust in which he or she has a reversionary interest in either the income or corpus therefrom, if, as of the inception of that portion of the trust, the value of the reversionary interest is more than 5% of the value of that portion. Also, the grantor is treated as holding any power or interest that was held by either the grantor's spouse at the time that the power or interest was created or who became the grantor's spouse after the creation of that power or interest. See Grantor Type Trusts, earlier, for more information.

Pre-need funeral trusts.   The purchasers of pre-need funeral services are the grantors and the owners of pre-need funeral trusts established under state laws. See Rev. Rul. 87-127, 1987-2 C.B. 156. However, the trustees of pre-need funeral trusts can elect to file the return and pay the tax for qualified funeral trusts. For more information, see Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts.

Nonqualified deferred compensation plans.   Taxpayers may adopt and maintain grantor trusts in connection with nonqualified deferred compensation plans (sometimes referred to as “rabbi trusts”). Rev. Proc. 92-64, 1992-2 C.B. 422, provides a “model grantor trust” for use in rabbi trust arrangements. The procedure also provides guidance for requesting rulings on the plans that use these trusts.

QSSTs.   The beneficiary of a qualified subchapter S trust is treated as the substantial owner of that portion of the trust which consists of stock in an S corporation for which an election under section 1361(d)(2) has been made. See QSSTs, earlier.

Bankruptcy Estate

A chapter 7 or 11 bankruptcy estate is a separate and distinct taxable entity from the individual debtor for federal income tax purposes. See Bankruptcy Estates, earlier.

For more information, see section 1398 and Pub. 908, Bankruptcy Tax Guide.

Pooled Income Fund

A pooled income fund is a split-interest trust with a remainder interest for a public charity and a life income interest retained by the donor or for another person. The property is held in a pool with other pooled income fund property and does not include any tax-exempt securities. The income for a retained life interest is figured using the yearly rate of return earned by the trust. See section 642(c) and the related regulations for more information.

B. Number of Schedules K-1 Attached

Every trust or decedent's estate claiming an income distribution deduction on page 1, line 18, must enter the number of Schedules K-1 (Form 1041) that are attached to Form 1041.

C. Employer Identification Number

Every estate or trust that is required to file Form 1041 must have an EIN. An EIN may be applied for:

  • Online by clicking on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated.

  • By mailing or faxing Form SS-4, Application for Employer Identification Number.

If the estate or trust has not received its EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. For more details, see Pub. 583, Starting a Business and Keeping Records.

D. Date Entity Created

Enter the date the trust was created, or, if a decedent's estate, the date of the decedent's death.

E. Nonexempt Charitable and Split-Interest Trusts

Section 4947(a)(1) Trust

Check this box if the trust is a nonexempt charitable trust within the meaning of section 4947(a)(1).

A nonexempt charitable trust is a trust:

  • That is not exempt from tax under section 501(a);

  • In which all of the unexpired interests are devoted to one or more charitable purposes described in section 170(c)(2)(B); and

  • For which a deduction was allowed under section 170 (for individual taxpayers) or similar Code section for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes).

Nonexempt charitable trust treated as a private foundation.   If a nonexempt charitable trust is treated as though it were a private foundation under section 509, then the fiduciary must file Form 990-PF, Return of Private Foundation, in addition to Form 1041.

  If a nonexempt charitable trust is treated as though it were a private foundation, and it has no taxable income under Subtitle A, it may check the box on Form 990-PF, Part VII-A, line 15 and enter the tax-exempt interest received or accrued during the year on that line, instead of filing Form 1041 to meet its section 6012 filing requirement for that tax year.

Excise taxes.

If a nonexempt charitable trust is treated as a private foundation, then it is subject to the same excise taxes under chapters 41 and 42 that a private foundation is subject to. If the nonexempt charitable trust is liable for any of these taxes (except the section 4940 tax), then it reports these taxes on Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. Taxes paid by the trust on Form 4720 or on Form 990-PF (the section 4940 tax) cannot be taken as a deduction on Form 1041.

Not a Private Foundation

Check this box if the nonexempt charitable trust (section 4947(a)(1)) is not treated as a private foundation under section 509. For more information, see Regulations section 53.4947-1.

Other returns that must be filed.   If a nonexempt charitable trust is not treated as though it were a private foundation, the fiduciary must file Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization Exempt from Income Tax, in addition to Form 1041, if the trust meets the filing requirements for either of those forms.

  If a nonexempt charitable trust is not treated as though it were a private foundation, and it has no taxable income under Subtitle A, it may answer “Yes” on Form 990, Part V, line 12a and enter the tax-exempt interest received or accrued during the year on Form 990, Part V, line 12b instead of filing Form 1041 to meet its section 6012 filing requirement for that tax year (or if Form 990-EZ is filed instead of Form 990, you may check the box on Form 990-EZ, line 43 and enter the tax-exempt interest received or accrued during the year on that line).

Section 4947(a)(2) Trust

Check this box if the trust is a split-interest trust described in section 4947(a)(2).

A split-interest trust is a trust that:

  • Is not exempt from tax under section 501(a);

  • Has some unexpired interests that are devoted to purposes other than religious, charitable, or similar purposes described in section 170(c)(2)(B); and

  • Has amounts transferred in trust after May 26, 1969, for which a deduction was allowed under section 170 (for individual taxpayers) or similar Code sections for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes).

Other returns that must be filed.   The fiduciary of a split-interest trust must file Form 5227. However, see the Instructions for Form 5227 for the exception that applies to split-interest trusts other than section 664 charitable remainder trusts.

F. Initial Return, Amended Return, etc.

Amended Return

If you are filing an amended Form 1041:

  • Check the “Amended return” box in Item F,

  • Complete the entire return,

  • Correct the appropriate lines with the new information, and

  • Refigure the estate's or trust's tax liability.

Note. If you are amending the return for an NOL carryback, also check the “Net operating loss carryback” box in Item F.

If the total tax on line 23 is larger on the amended return than on the original return, you generally should pay the difference with the amended return. However, you should adjust this amount if there is any increase or decrease in the total payments shown on line 25.

Attach a sheet that explains the reason for the amendments and identifies the lines and amounts being changed on the amended return.

Amended Schedule H (Form 1040).   If you discover an error on a Schedule H that you previously filed with Form 1041, file an “Amended” Form 1041 and attach a corrected Schedule H.

   In the top margin of your corrected Schedule H, write “Amended,” (using red ink, if possible) and the date you discovered the error. Also, on an attachment explain the reason for your correction. If you owe tax, pay the tax in full with your amended Form 1041. If you overpaid tax on a previously filed Schedule H, depending on whether you choose the adjustment or claim for refund process to correct the error, you must either repay or reimburse the employee's share of social security and Medicare tax or get the employee's consent to the filing of a refund claim for their share. See Pub. 926, Household Employer's Tax Guide, for more information.

Amended Schedule K-1 (Form 1041).   If the amended return results in a change to income, or a change in distribution of any income or other information provided to a beneficiary, an amended Schedule K-1 (Form 1041) must also be filed with the amended Form 1041 and given to each beneficiary. Check the “Amended K-1” box at the top of the amended Schedule K-1.

Final Return

Check this box if this is a final return because the estate or trust has terminated. Also, check the “Final K-1” box at the top of Schedule K-1.

If, on the final return, there are excess deductions, an unused capital loss carryover, or an NOL carryover, see the instructions for Schedule K-1, box 11, later.

Change in Trust's Name

If the name of the trust has changed from the name shown on the prior year's return (or Form SS-4 if this is the first return being filed), be sure to check this box.

Change in Fiduciary

If a different fiduciary enters his or her name on the line for Name and title of fiduciary than was shown on the prior year's return (or Form SS-4 if this is the first return being filed) and you did not file a Form 8822-B, be sure to check this box. If there is a change in the fiduciary whose address is used as the mailing address for the estate or trust after the return is filed, use Form 8822-B to notify the IRS.

Change in Fiduciary's Name

If the fiduciary changed his or her name from the name that he or she entered on the prior year's return (or Form SS-4 if this is the first return being filed), be sure to check this box.

Change in Fiduciary's Address

If the same fiduciary who filed the prior year's return (or Form SS-4 if this is the first return being filed) files the current year's return and changed the address on the return (including a change to an "in care of" name and address), and did not report the change on Form 8822-B, check this box.

If the address shown on Form 1041 changes after you file the form (including a change to an "in care of" name and address), file Form 8822-B to notify the IRS of the change.

G. Section 645 Election

If a section 645 election was made by filing Form 8855, check the box in item G. See Special Rule for Certain Revocable Trusts under Who Must File and Form 8855 for more information about this election.

Income

Special Rule for Blind Trust

If you are reporting income from a qualified blind trust (under the Ethics in Government Act of 1978), do not identify the payer of any income to the trust but complete the rest of the return as provided in the instructions. Also write “Blind Trust” at the top of page 1.

Extraterritorial Income Exclusion

The extraterritorial income exclusion is not allowed for transactions after 2006. However, income from certain long-term sales and leases may still qualify for the exclusion. For details and to figure the amount of the exclusion, see Form 8873, Extraterritorial Income Exclusion, and its separate instructions. The estate or trust must report the extraterritorial income exclusion on line 15a of Form 1041, page 1.

Although the extraterritorial income exclusion is entered on line 15a, it is an exclusion from income and should be treated as tax-exempt income when completing other parts of the return.

Line 1—Interest Income

Report the estate's or trust's share of all taxable interest income that was received during the tax year. Examples of taxable interest include interest from:

  • Accounts (including certificates of deposit and money market accounts) with banks, credit unions, and thrift institutions;

  • Notes, loans, and mortgages;

  • U.S. Treasury bills, notes, and bonds;

  • U.S. savings bonds;

  • Original issue discount; and

  • Income received as a regular interest holder of a real estate mortgage investment conduit (REMIC).

For taxable bonds acquired after 1987, amortizable bond premium is treated as an offset to the interest income instead of as a separate interest deduction. See Pub. 550.

For the year of the decedent's death, Forms 1099-INT issued in the decedent's name may include interest income earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on Schedule B (Form 1040A or 1040), line 1 the total interest shown on Form 1099-INT. Under the last entry on line 1, subtotal all the interest reported on line 1. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the interest reported on Form 1041 and subtract it from the subtotal.

Line 2a—Total Ordinary Dividends

Report the estate's or trust's share of all ordinary dividends received during the tax year.

For the year of the decedent's death, Forms 1099-DIV issued in the decedent's name may include dividends earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on Schedule B (Form 1040A or 1040), line 5 the ordinary dividends shown on Form 1099-DIV. Under the last entry on line 5, subtotal all the dividends reported on line 5. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the ordinary dividends reported on Form 1041 and subtract it from the subtotal.

Report capital gain distributions on Schedule D (Form 1041), Line 13.

Line 2b—Qualified Dividends

Enter the beneficiary's allocable share of qualified dividends on line 2b(1) and enter the estate's or trust's allocable share on line 2b(2).

If the estate or trust received qualified dividends that were derived from IRD, you must reduce the amount on line 2b(2) by the portion of the estate tax deduction claimed on Form 1041, page 1, line 19, that is attributable to those qualified dividends. Do not reduce the amounts on line 2b by any other allocable expenses.

Note.

The beneficiary's share (as figured above) may differ from the amount entered on line 2b of Schedule K-1 (Form 1041).

Qualified dividends.   Qualified dividends are eligible for a lower tax rate than other ordinary income. Generally, these dividends are reported to the estate or trust in box 1b of Form(s) 1099-DIV. See Pub. 550 for the definition of qualified dividends if the estate or trust received dividends not reported on Form 1099-DIV.

Exception.

Some dividends may be reported to the estate or trust as in box 1b of Form 1099-DIV but are not qualified dividends. These include:

  • Dividends received on any share of stock that the estate or trust held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. When counting the number of days the stock was held, include the day the estate or trust disposed of the stock but not the day it acquired the stock. However, you cannot count certain days during which the estate's or trust's risk of loss was diminished. See Pub. 550 for more details.

  • Dividends attributable to periods totaling more than 366 days that the estate or trust received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days the stock was held, include the day the estate or trust disposed of the stock but not the day it acquired the stock. However, you cannot count certain days during which the estate's or trust's risk of loss was diminished. See Pub. 550 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule above.

  • Dividends on any share of stock to the extent that the estate or trust is under an obligation (including a short sale) to make related payments with respect to positions in substantially similar or related property.

  • Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.

  
If you have an entry on line 2b(2), be sure you use Schedule D (Form 1041), the Schedule D Tax Worksheet, or the Qualified Dividends Tax Worksheet, whichever applies, to figure the estate's or trust's tax. Figuring the estate's or trust's tax liability in this manner will usually result in a lower tax.

Line 3—Business Income or (Loss)

If the estate operated a business, report the income and expenses on Schedule C (Form 1040), Profit or Loss From Business (or Schedule C-EZ (Form 1040), Net Profit From Business). Enter the net profit or (loss) from Schedule C (or Schedule C-EZ) on line 3.

Line 4—Capital Gain or (Loss)

Enter the gain from Schedule D (Form 1041), Part III, line 19, column (3) or the loss from Part IV, line 20.

Do not substitute Schedule D (Form 1040) for Schedule D (Form 1041).

Line 5—Rents, Royalties, Partnerships, Other Estates and Trusts, etc.

Use Schedule E (Form 1040), Supplemental Income and Loss, to report the estate's or trust's share of income or (losses) from rents, royalties, partnerships, S corporations, other estates and trusts, and REMICs. Also use Schedule E (Form 1040) to report farm rental income and expenses based on crops or livestock produced by a tenant. Enter the net profit or (loss) from Schedule E on line 5. See the Instructions for Schedule E (Form 1040) for reporting requirements.

If the estate or trust received a Schedule K-1 from a partnership, S corporation, or other flow-through entity, use the corresponding lines on Form 1041 to report the interest, dividends, capital gains, etc., from the flow-through entity.

Line 6—Farm Income or (Loss)

If the estate or trust operated a farm, use Schedule F (Form 1040), Profit or Loss From Farming, to report farm income and expenses. Enter the net profit or (loss) from Schedule F on line 6.

If an estate or trust has farm rental income and expenses based on crops or livestock produced by a tenant, report the income and expenses on Schedule E (Form 1040). Do not use Form 4835, Farm Rental Income and Expenses, or Schedule F (Form 1040) to report such income and expenses and do not include the net profit or (loss) from such income and expenses on line 6.

Line 7—Ordinary Gain or (Loss)

Enter from line 17, Form 4797, Sales of Business Property, the ordinary gain or loss from the sale or exchange of property other than capital assets and also from involuntary conversions (other than casualty or theft).

Line 8—Other Income

Enter other items of income not included on lines 1, 2a, and 3 through 7. List the type and amount on an attached schedule if the estate or trust has more than one item.

Items to be reported on line 8 include:

  • Unpaid compensation received by the decedent's estate that is IRD, and

  • Any part of a total distribution shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that is treated as ordinary income. For more information, see Form 4972, Tax on Lump-Sum Distributions, and its instructions.

Deductions

Depreciation, Depletion, and Amortization

A trust or decedent's estate is allowed a deduction for depreciation, depletion, and amortization only to the extent the deductions are not apportioned to the beneficiaries. An estate or trust is not allowed to make an election under section 179 to expense depreciable business assets.

The estate's or trust's share of depreciation, depletion, and amortization is generally reported on the appropriate lines of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on lines 3, 5, or 6 of Form 1041. If the deduction is not related to a specific business or activity, then report it on line 15a.

Depreciation.   For a decedent's estate, the depreciation deduction is apportioned between the estate and the heirs, legatees, and devisees on the basis of the estate's income allocable to each.

  For a trust, the depreciation deduction is apportioned between the income beneficiaries and the trust on the basis of the trust income allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a depreciation reserve. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated among the income beneficiaries and the trust in the same manner as the trust's accounting income. See Regulations section 1.167(h)-1(b).

Depletion.   For mineral or timber property held by a decedent's estate, the depletion deduction is apportioned between the estate and the heirs, legatees, and devisees on the basis of the estate's income from such property allocable to each.

  For mineral or timber property held in trust, the depletion deduction is apportioned between the income beneficiaries and the trust based on the trust income from such property allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a reserve for depletion. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated among the beneficiaries and the trust in the same manner as the trust's accounting income. See Regulations section 1.611-1(c)(4).

Amortization.   The deduction for amortization is apportioned between an estate or trust and its beneficiaries under the same principles used to apportion the deductions for depreciation and depletion.

  The deduction for the amortization of reforestation expenditures under section 194 is allowed only to an estate.

Allocable share from a pass-through entity.   Depreciation, depletion, and amortization received from a pass-through entity on a Schedule K-1 is apportioned and reported in the same manner as discussed above. A section 179 expense received from a pass-through entity on a Schedule K-1 is not deductible by the estate or trust.

Allocation of Deductions for Tax-Exempt Income

Generally, no deduction that would otherwise be allowable is allowed for any expense (whether for business or for the production of income) that is allocable to tax-exempt income. Examples of tax-exempt income include:

  • Certain death benefits (section 101),

  • Interest on state or local bonds (section 103),

  • Compensation for injuries or sickness (section 104), and

  • Income from discharge of indebtedness in a title 11 case (section 108).

Exception.   State income taxes and business expenses that are allocable to tax-exempt interest are deductible.

   Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion of expenses indirectly allocable to both tax-exempt income and other income must be allocated to each class of income.

Deductions That May Be Allowable for Estate Tax Purposes

Administration expenses and casualty and theft losses deductible on Form 706 may be deducted, to the extent otherwise deductible for income tax purposes, on Form 1041 if the fiduciary files a statement waiving the right to deduct the expenses and losses on Form 706. The statement must be filed before the expiration of the statutory period of limitations for the tax year the deduction is claimed. See Pub. 559 for more information.

Accrued Expenses

Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year that: (a) all events have occurred that determine the liability; and (b) the amount of the liability can be figured with reasonable accuracy. However, all the events that establish liability are treated as occurring only when economic performance takes place. There are exceptions for recurring items. See section 461(h).

Limitations on Deductions

At-Risk Loss Limitations

Generally, the amount the estate or trust has “at-risk” limits the loss it can deduct for any tax year. Use Form 6198, At-Risk Limitations, to figure the deductible loss for the year and file it with Form 1041. For more information, see Pub. 925, Passive Activity and At-Risk Rules.

Passive Activity Loss and Credit Limitations

In general.   Section 469 and the regulations thereunder generally limit losses from passive activities to the amount of income derived from all passive activities. Similarly, credits from passive activities are generally limited to the tax attributable to such activities. These limitations are first applied at the estate or trust level.

  Generally, an activity is a passive activity if it involves the conduct of any trade or business, and the taxpayer does not materially participate in the activity. Passive activities do not include working interests in oil and gas properties. See section 469(c)(3).

Note.

Material participation standards for estates and trusts have not been established by regulations.

  For a grantor trust, material participation is determined at the grantor level.

  If the estate or trust distributes an interest in a passive activity, the basis of the property immediately before the distribution is increased by the passive activity losses allocable to the interest, and such losses cannot be deducted. See section 469(j)(12).

  
Losses from passive activities are first subject to the at-risk rules. When the losses are deductible under the at-risk rules, the passive activity rules then apply.

Rental activities.   Generally, rental activities are passive activities, whether or not the taxpayer materially participates. However, certain taxpayers who materially participate in real property trades or businesses are not subject to the passive activity limitations on losses from rental real estate activities in which they materially participate. For more details, see section 469(c)(7).

  For tax years of an estate ending less than 2 years after the decedent's date of death, up to $25,000 of deductions and deduction equivalents of credits from rental real estate activities in which the decedent actively participated are allowed. Any excess losses or credits are suspended for the year and carried forward.

Portfolio income.   Portfolio income is not treated as income from a passive activity, and passive losses and credits generally may not be applied to offset it. Portfolio income generally includes interest, dividends, royalties, and income from annuities. Portfolio income of an estate or trust must be accounted for separately.

Forms to file.   See Form 8582, Passive Activity Loss Limitations, to figure the amount of losses allowed from passive activities. See Form 8582-CR, Passive Activity Credit Limitations, to figure the amount of credit allowed for the current year.

Transactions Between Related Taxpayers

Under section 267, a trust that uses the accrual method of accounting may only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. For this purpose, a related party includes:

  1. A grantor and a fiduciary of any trust;

  2. A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;

  3. A fiduciary of a trust and a beneficiary of such trust;

  4. A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;

  5. A fiduciary of a trust and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust; and

  6. An executor of an estate and a beneficiary of that estate, except for a sale or exchange to satisfy a pecuniary bequest (that is, a bequest of a sum of money).

Line 10—Interest

Enter the amount of interest (subject to limitations) paid or incurred by the estate or trust on amounts borrowed by the estate or trust, or on debt acquired by the estate or trust (for example, outstanding obligations from the decedent) that is not claimed elsewhere on the return.

If the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire an interest in a passive activity), the fiduciary must make an interest allocation according to the rules in Temporary Regulations section 1.163-8T.

Do not include interest paid on indebtedness incurred or continued to purchase or carry obligations on which the interest is wholly exempt from income tax.

Personal interest is not deductible. Examples of personal interest include interest paid on:

  • Revolving charge accounts used to purchase personal use property;

  • Personal notes for money borrowed from a bank, credit union, or other person;

  • Installment loans on personal use property; and

  • Underpayments of federal, state, or local income taxes.

Interest that is paid or incurred on indebtedness allocable to a trade or business (including a rental activity) should be deducted on the appropriate line of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041.

Types of interest to include on line 10 are:

  1. Any investment interest (subject to limitations—see below);

  2. Any qualified residence interest (see later); and

  3. Any interest payable under section 6601 on any unpaid portion of the estate tax attributable to the value of a reversionary or remainder interest in property for the period during which an extension of time for payment of such tax is in effect.

Investment interest.   Generally, investment interest is interest (including amortizable bond premium on taxable bonds acquired after October 22, 1986, but before January 1, 1988) that is paid or incurred on indebtedness that is properly allocable to property held for investment. Investment interest does not include any qualified residence interest, or interest that is taken into account under section 469 in figuring income or loss from a passive activity.

  Generally, net investment income is the excess of investment income over investment expenses. Investment expenses are those expenses (other than interest) allowable after application of the 2% floor on miscellaneous itemized deductions.

  The amount of the investment interest deduction may be limited. Use Form 4952, Investment Interest Expense Deduction, to figure the allowable investment interest deduction.

  If you must complete Form 4952, check the box on line 10 of Form 1041 and attach Form 4952. Then, add the deductible investment interest to the other types of deductible interest and enter the total on line 10.

Qualified residence interest.   Interest paid or incurred by an estate or trust on indebtedness secured by a qualified residence of a beneficiary of an estate or trust is treated as qualified residence interest if the residence would be a qualified residence (that is, the principal residence or the secondary residence selected by the beneficiary) if owned by the beneficiary. The beneficiary must have a present interest in the estate or trust or an interest in the residuary of the estate or trust. See Pub. 936, Home Mortgage Interest Deduction, for an explanation of the general rules for deducting home mortgage interest.

  See section 163(h)(3) for a definition of qualified residence interest and for limitations on indebtedness.

Qualified mortgage insurance premiums.   Enter (on the worksheet later) the qualified mortgage insurance premiums paid under a mortgage insurance contract issued after December 31, 2006, in connection with qualified residence acquisition debt that was secured by a principal or secondary residence. See Prepaid mortgage insurance below if the estate or trust paid any premiums allocable after 2013. If at least one other person was liable for and paid the premiums in connection with the loan, and the premiums were reported on Form 1098, Mortgage Interest Statement, include the estate's or trust's share of the 2013 premiums on the worksheet later.

  Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006).

  Mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as a funding fee and guarantee fee, respectively. These fees can be deducted fully in 2013 if the mortgage insurance contract was issued in 2013. Contact the mortgage insurance issuer to determine the deductible amount if it is not included in box 4 of Form 1098.

Qualified Mortgage Insurance Premiums Deduction Worksheet

   
1.   Enter the total premiums the estate or trust paid in 2013 for qualified mortgage insurance for a contract issued after December 31, 2006 1.    
2.   Enter the estate's or trust's AGI 2.      
3.   Enter $100,000 3.      
4.   Is the amount on line 2 more than the amount on line 3?        
    No. The deduction is not limited. Include the amount from line 1 above on Form 1041, line 10. Do not complete the rest of this worksheet.        
    Yes. Subtract line 3 from line 2. If the result is not a multiple of $1,000, increase it to the next multiple of $1,000. For example, increase $425 to $1,000, increase $2,025 to $3,000, etc. 4.      
5.   Divide line 4 by $10,000. Enter the result as a decimal. If the result is 1.0 or more, enter 1.0 5. .  
6.   Multiply line 1 by line 5 6.    
7.   Qualified mortgage insurance premiums deduction. Subtract line 6 from line 1. Enter the result here and include the amount on Form 1041, line 10 7.    
   

Prepaid mortgage insurance.

If the estate or trust paid mortgage insurance premiums allocable to periods after 2013, such premiums must be allocated over the shorter of:

  • The stated term of the mortgage, or

  • 84 months, beginning with the month the insurance was obtained.

The premiums are treated as paid in the year to which they are allocated. If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. See Pub. 936 for details. These allocation rules do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service.

Limit on the amount that is deductible.

The estate or trust cannot deduct mortgage insurance premiums if the estate's or trust's AGI is more than $109,000. If the estate's or trust's AGI is more than $100,000, its deduction is limited and you must use the worksheet later to figure the deduction. See How to figure AGI for estates and trusts, later, for information on figuring AGI.

Line 11—Taxes

Enter any deductible taxes paid or incurred during the tax year that are not deductible elsewhere on Form 1041. Deductible taxes include the following:

  • State and local income taxes. You can deduct state and local income taxes unless you elect to deduct state and local general sales taxes. You cannot deduct both.

  • State and local general sales taxes. You can elect to deduct state and local general sales taxes instead of state and local income taxes. Generally, you can elect to deduct the actual state and local general sales taxes (including compensating use taxes) you paid in 2013 if the tax rate was the same as the general sales tax rate. However, sales taxes on food, clothing, medical supplies, and motor vehicles are deductible as a general sales tax even if the tax rate was less than the general sales tax rate. Sales taxes on motor vehicles are also deductible as a general sales tax if the tax rate was more than the general sales tax rate, but the tax is deductible only up to the amount of tax that would have been imposed at the general sales tax rate. Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles, trucks, vans, and off-road vehicles. Also include any state and local general sales taxes paid for a leased motor vehicle.

    Do not include sales taxes paid on items used in a trade or business. An estate or trust cannot use the Optional Sales Tax Tables for individuals in the Instructions for Schedule A (Form 1040), Itemized Deductions, to figure its deduction.

  • State, local, and foreign real property taxes.

  • State and local personal property taxes.

  • Foreign or U.S. possession income taxes. You may want to take a credit for the tax instead of a deduction. See the instructions for Schedule G, line 2a, later, for more details.

  • The generation-skipping transfer (GST) tax imposed on income distributions.

Do not deduct:

  • Federal income taxes;

  • Estate, inheritance, legacy, succession, and gift taxes; or

  • Federal duties and excise taxes.

Line 12—Fiduciary Fees

Enter the deductible fees paid or incurred to the fiduciary for administering the estate or trust during the tax year.

Fiduciary fees deducted on Form 706 cannot be deducted on Form 1041.

Line 15a—Other Deductions Not Subject to the 2% Floor

Attach your own schedule, listing by type and amount all allowable deductions that are not deductible elsewhere on Form 1041.

Do not include any losses on worthless bonds and similar obligations and nonbusiness bad debts. Report these losses as applicable on Form 8949, Sales and Other Dispositions of Capital Assets.

Do not deduct medical or funeral expenses on Form 1041. Medical expenses of the decedent paid by the estate may be deductible on the decedent's income tax return for the year incurred. See section 213(c). Funeral expenses are deductible only on Form 706.

The following are examples of deductions that are reported on line 15a.

Bond premium(s).   For taxable bonds acquired before October 23, 1986, if the fiduciary elected to amortize the premium, report the amortization on this line. If you made the election to amortize the premium, the basis in the taxable bond must be reduced by the amount of amortization.

  For tax-exempt bonds, you cannot deduct the premium that is amortized. Although the premium cannot be deducted, you must amortize the premium and reduce the estate's or trust's basis in the tax-exempt bond by the amount of premium amortized.

  For more information, see section 171 and Pub. 550.

  If you claim a bond premium deduction for the estate or trust, figure the deduction on a separate sheet and attach it to Form 1041.

Casualty and theft losses.   Use Form 4684, Casualties and Thefts, to figure any deductible casualty and theft losses.

Domestic production activities deduction.   The estate or trust may be able to deduct up to 9% of its share of qualified production activities income (QPAI) from the following activities.
  1. Construction performed in the United States.

  2. Engineering or architectural services performed in the United States for construction projects in the United States.

  3. Any lease, rental, license, sale, exchange, or other disposition of:

    1. Tangible personal property, computer software, and sound recordings that the estate or trust manufactured, produced, grew, or extracted in whole or in significant part within the United States;

    2. Any qualified film the estate or trust produced; or

    3. Electricity, natural gas, or potable water the estate or trust produced in the United States.

  In certain cases, the United States includes the Commonwealth of Puerto Rico.

  The deduction does not apply to income derived from:
  • The sale of food and beverages the estate or trust prepared at a retail establishment;

  • Property the estate or trust leased, licensed, or rented for use by any related person; or

  • The transmission or distribution of electricity, natural gas, or potable water.

  The deduction cannot exceed 9% of modified AGI or 50% of certain Form W-2 wages. QPAI, as well as Form W-2 wages, must be apportioned between the trust or estate and its beneficiaries. For more details, see Form 8903, Domestic Production Activities Deduction, and its separate instructions.

Special rule for oil-related QPAI.

If the estate or trust has oil-related QPAI, the domestic production activities deduction is reduced by 3% of the smallest of:

  • Oil-related QPAI,

  • QPAI, or

  • Modified AGI.

See Form 8903 for details.

Estate's or trust's share of amortization, depreciation, and depletion not claimed elsewhere.   If you cannot deduct the estate's or trust's apportioned share of amortization, depreciation, and depletion as rent or royalty expenses on Schedule E (Form 1040), or as business or farm expenses on Schedule C, C-EZ, or F (Form 1040), itemize the estate's or trust's apportioned share of the deductions on an attached sheet and include them on line 15a.

Note.

Do not report the beneficiary's apportioned share of depreciation, depletion, and amortization on line 15a. Report the beneficiary's apportioned share of deductions on Schedule K-1 (Form 1041), box 9.

  Itemize each beneficiary's apportioned share of the deductions and report them in the appropriate box of Schedule K-1 (Form 1041).

Line15b—Net Operating Loss Deduction

An estate or trust is allowed a net operating loss deduction (NOLD) under section 172.

If you claim a NOLD for the estate or trust, figure the deduction on a separate sheet and attach it to the return.

Line 15c—Allowable Miscellaneous Itemized Deductions Subject to the 2% Floor

Miscellaneous itemized deductions are deductible only to the extent that the aggregate amount of such deductions exceeds 2% of AGI.

Among the miscellaneous itemized deductions that must be included on line 15c are expenses for the production or collection of income under section 212, such as investment advisory fees, subscriptions to investment advisory publications, and the cost of safe deposit boxes.

Miscellaneous itemized deductions do not include deductions for:

  • Interest under section 163,

  • Taxes under section 164,

  • The amortization of bond premium under section 171,

  • Estate taxes attributable to IRD under section 691(c), or

  • Expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in the estate or trust.

For other exceptions, see section 67(b).

How to figure AGI for estates and trusts.   You figure AGI by subtracting the following from total income on line 9 of page 1:
  1. The administration costs of the estate or trust (the total of lines 12, 14, and 15a to the extent they are costs incurred in the administration of the estate or trust) that would not have been incurred if the property were not held by the estate or trust;

  2. The income distribution deduction (line 18);

  3. The amount of the exemption (line 20);

  4. The domestic production activities deduction claimed on line 15a; and

  5. The NOLD claimed on line 15b.

  For those estates and trusts whose income distribution deduction is limited to the actual distribution, and not the DNI (that is, the income distribution is less than the DNI), when computing the AGI, use the amount of the actual distribution.

   For those estates and trusts whose income distribution deduction is limited to the DNI (that is, the actual distribution exceeds the DNI), the DNI must be figured taking into account the allowable miscellaneous itemized deductions (AMID) after application of the 2% floor. In this situation there are two unknown amounts: (a) the AMID and (b) the DNI.

Computing line 15c.   To compute line 15c, use the equation below:

  AMID = Total miscellaneous itemized deductions – (.02(AGI))

  The following example illustrates how algebraic equations can be used to solve for these unknown amounts.

Example.

The Malcolm Smith Trust, a complex trust, earned $20,000 of dividend income, $20,000 of capital gains, and a fully deductible $5,000 loss from XYZ partnership (chargeable to corpus) in 2013. The trust instrument provides that capital gains are added to corpus. Fifty percent of the fiduciary fees are allocated to income and 50% to corpus. The trust claimed a $2,000 deduction on line 12 of Form 1041. The trust incurred $1,500 of miscellaneous itemized deductions (chargeable to income), which are subject to the 2% floor. There are no other deductions. The trustee made a discretionary distribution of the accounting income of $17,500 to the trust's sole beneficiary.

Because the actual distribution can reasonably be expected to exceed the DNI, the trust must figure the DNI, taking into account the allowable miscellaneous itemized deductions, to determine the amount to enter on line 15c.

The trust also claims an exemption of $100 on line 20.

Using the facts in this example:

AMID = 1,500 – (.02(AGI))

In all situations, use the following equation to compute the AGI:

AGI = (line 9) – (the total of lines 12, 14, and 15a to the extent they are costs incurred in the administration of the estate or trust that would not have been incurred if the property were not held by the estate or trust) – (line 15b) – (line 18) – (line 20).

Note.

There are no other deductions claimed by the trust on line 15a that are deductible in arriving at AGI.

Figuring AGI in this example, we get:

AGI = 35,000 – 2,000 – DNI – 100

Since the value of line 18 is not known because it is limited to the DNI, you are left with the following:

AGI = 32,900 – DNI

Substitute the value of AGI in the equation:

AMID = 1,500 – (.02(32,900 – DNI))

The equation cannot be solved until the value of DNI is known. The DNI can be expressed in terms of the AMID. To do this, compute the DNI using the known values. In this example, the DNI is equal to the total income of the trust (less any capital gains allocated to corpus or plus any capital loss from line 4); less total deductions from line 16 (excluding any miscellaneous itemized deductions); less the AMID.

Thus, DNI = (line 9) – (line 19, column (2) of Schedule D (Form 1041)) – (line 16) – (AMID)

Substitute the known values:

DNI = 35,000 – 20,000 – 2,000 – AMID

DNI = 13,000 – AMID

Substitute the value of DNI in the equation to solve for AMID:

AMID = 1,500 – (.02(32,900 – (13,000 – AMID)))

AMID = 1,500 – (.02(32,900 – 13,000 + AMID))

AMID = 1,500 – (658 – 260 + .02AMID)

AMID = 1,102 – .02AMID

1.02AMID = 1,102

AMID = 1,080

DNI = 11,920 (i.e., 13,000 – 1,080)

AGI = 20,980 (i.e., 32,900 – 11,920)

Note.

The income distribution deduction is equal to the smaller of the distribution ($17,500) or the DNI ($11,920).

Enter the value of AMID on line 15b (the DNI should equal line 7 of Schedule B) and complete the rest of Form 1041 according to the instructions.

If the 2% floor is more than the deductions subject to the 2% floor, no deductions are allowed.

Line 18—Income Distribution Deduction

If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute any other amounts to beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction. However, if you are filing for a pooled income fund, do not complete Schedule B. Instead, attach a statement to support the computation of the income distribution deduction. For more information, see Pooled Income Funds, earlier.

If the estate or trust claims an income distribution deduction, complete and attach:

  • Part I (through line 26) and Part II of Schedule I (Form 1041) to refigure the deduction on a minimum tax basis, and

  • Schedule K-1 (Form 1041) for each beneficiary to which a distribution was made or required to be made.

Cemetery perpetual care fund.   On line 18, deduct the amount, not more than $5 per gravesite, paid for maintenance of cemetery property. To the right of the entry space for line 18, enter the number of gravesites. Also write “Section 642(i) trust” in parentheses after the trust's name at the top of Form 1041. You do not have to complete Schedules B of Form 1041 and K-1 (Form 1041).

  Do not enter less than zero on line 18.

Line 19—Estate Tax Deduction (Including Certain Generation-Skipping Transfer Taxes)

If the estate or trust includes IRD in its gross income, and such amount was included in the decedent's gross estate for estate tax purposes, the estate or trust is allowed to deduct in the same tax year that the income is included that portion of the estate tax imposed on the decedent's estate that is attributable to the inclusion of the IRD in the decedent's estate. For an example of the computation, see Regulations section 1.691(c)-1 and Pub. 559.

If any amount properly paid, credited, or required to be distributed by an estate or trust to a beneficiary consists of IRD received by the estate or trust, do not include such amounts in determining the estate tax deduction for the estate or trust. Figure the deduction on a separate sheet. Attach the sheet to your return.

If you claim a deduction for estate tax attributable to qualified dividends or capital gains, you may have to adjust the amount on Form 1041, page 1, line 2b(2), or Schedule D (Form 1041), line 22.

Also, a deduction is allowed for the GST tax imposed as a result of a taxable termination or a direct skip occurring as a result of the death of the transferor. See section 691(c)(3). Enter the estate's or trust's share of these deductions on line 19.

Line 20—Exemption

Exemption Worksheet for Qualified Disability Trusts Only—Line 20

Note:If the trust’s modified AGI* is less than or equal to $250,000, enter $3,900 on Form 1041, line 20. Otherwise, complete the worksheet below to figure the trust’s exemption.
1. Maximum exemption 1. $3,900
2. Enter the trust’s modified AGI* 2.      
3. Threshold amount 3. $250,000    
4. Subtract line 3 from line 2 4.      
Note: If line 4 is more than $122,500, enter -0- on line 8 below. Do not complete lines 5 through 7.    
5. Divide line 4 by $2,500. If the result is not a whole number, increase it to the next higher whole number (for example, increase 0.0004 to 1) 5.      
6. Multiply line 5 by 2% (.02) and enter the result as a decimal 6.      
7. Multiply line 1 by line 6 7.  
8. Exemption. Subtract line 7 from line 1. Enter the result here and on Form 1041, line 20 8.  
  *Figure the trust’s modified AGI in the same manner as AGI is figured in the line 15c instructions earlier, except use zero when figuring the amount of the trust’s exemption.  
Decedents' estates.   A decedent's estate is allowed a $600 exemption.

Trusts required to distribute all income currently.   A trust whose governing instrument requires that all income be distributed currently is allowed a $300 exemption, even if it distributed amounts other than income during the tax year.

Qualified disability trusts.   A qualified disability trust is allowed a $3,900 exemption if the trust's modified AGI is less than or equal to $250,000. If its modified AGI exceeds $250,000, complete the worksheet, later, to figure the amount of the trust's exemption. To figure modified AGI, follow the instructions for figuring AGI for line 15c earlier, except use zero as the amount of the trust's exemption when figuring AGI.

  A qualified disability trust is any trust:
  1. Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who is disabled, and

  2. All of the beneficiaries of which are determined by the Commissioner of Social Security to have been disabled for some part of the tax year within the meaning of 42 U.S.C. 1382c(a)(3).

  A trust will not fail to meet item 2 above just because the trust's corpus may revert to a person who is not disabled after the trust ceases to have any disabled beneficiaries.

All other trusts.    A trust not described above is allowed a $100 exemption.

Tax and Payments

Line 22—Taxable Income

Minimum taxable income.   Line 22 cannot be less than the larger of:
  • The inversion gain of the estate or trust, as figured under section 7874, if the estate or trust is an expatriated entity or a partner in an expatriated entity, or

  • The sum of the excess inclusions of the estate or trust from Schedule Q (Form 1066), Quarterly Notice to Residual Interest Holder of REMIC Taxable Income or Net Loss Allocation, line 2c.

Net operating loss (NOL).   If line 22 (figured without regard to the minimum taxable income rule stated above) is a loss, the estate or trust may have an NOL. Do not include the deductions claimed on lines 13, 18, and 20 when figuring the amount of the NOL.

  Generally, an NOL may be carried back to the prior 2 tax years and forward for up to 20 years. The 2-year carryback period does not apply to the portion of an NOL attributable to an eligible loss; a farming loss; a qualified disaster, GO Zone, or disaster recovery assistance loss; or a specified liability loss. An estate or trust may also elect to carry an NOL forward only, instead of first carrying it back. For more information, see the Instructions for Form 1045, Application for Tentative Refund.

  Complete Schedule A of Form 1045 to figure the amount of the NOL that is available for carryback or carryover. Use Form 1045 or file an amended return to apply for a refund based on an NOL carryback. For more details, see Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.

  On the termination of the estate or trust, any unused NOL carryover that would be allowable to the estate or trust in a later tax year, but for the termination, is allowed to the beneficiaries succeeding to the property of the estate or trust. See the instructions for Schedule K-1 (Form 1041), box 11, codes D and E, later.

Excess deductions on termination.   If the estate or trust has for its final year deductions (excluding the charitable deduction and exemption) in excess of its gross income, the excess is allowed as an itemized deduction to the beneficiaries succeeding to the property of the estate or trust.

  In general, an unused NOL carryover that is allowed to beneficiaries (as explained above) cannot also be treated as an excess deduction. However, if the final year of the estate or trust is also the last year of the NOL carryover period, the NOL carryover not absorbed in that tax year by the estate or trust is included as an excess deduction. See the instructions for Schedule K-1 (Form 1041), box 11, code A, later.

Line 24a—2013 Estimated Tax Payments and Amount Applied From 2012 Return

Enter the amount of any estimated tax payment you made with Form 1041-ES for 2013 plus the amount of any overpayment from the 2012 return that was applied to the 2013 estimated tax.

If the estate or trust is the beneficiary of another trust and received a payment of estimated tax that was credited to the trust (as reflected on the Schedule K-1 issued to the trust), then report this amount separately with the notation “section 643(g)” in the space next to line 24a and include this amount in the amount entered on line 24a.

Do not include on Form 1041 estimated tax paid by an individual before death. Instead, include those payments on the decedent's final income tax return.

Line 24b—Estimated Tax Payments Allocated to Beneficiaries

The trustee (or executor, for the final year of the estate) may elect under section 643(g) to have any portion of its estimated tax treated as a payment of estimated tax made by a beneficiary or beneficiaries. The election is made on Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, which must be filed by the 65th day after the close of the trust's tax year. Form 1041-T shows the amounts to be allocated to each beneficiary. This amount is reported on the beneficiary's Schedule K-1 (Form 1041), box 13, code A.

Attach Form 1041-T to your return only if you have not yet filed it; however, attaching Form 1041-T to Form 1041 does not extend the due date for filing Form 1041-T. If you have already filed Form 1041-T, do not attach a copy to your return.

Failure to file Form 1041-T by the due date (March 6, 2014, for calendar year estates and trusts) will result in an invalid election. An invalid election will require the filing of amended Schedules K-1 for each beneficiary who was allocated a payment of estimated tax.

Line 24d—Tax Paid With Form 7004

If you filed Form 7004 to request an extension of time to file Form 1041, enter the amount that you paid with the extension request.

Line 24e—Federal Income Tax Withheld

Use line 24e to claim a credit for any federal income tax withheld (and not repaid) by: (a) an employer on wages and salaries of a decedent received by the decedent's estate; (b) a payer of certain gambling winnings (for example, state lottery winnings); or (c) a payer of distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc., received by a decedent's estate or trust. Attach a copy of Form W-2, Form W-2G, or Form 1099-R to the front of the return.

Except for backup withholding (as explained below), withheld income tax cannot be passed through to beneficiaries on either Schedule K-1 or Form 1041-T.

Backup withholding.   If the estate or trust received a 2013 Form 1099 showing federal income tax withheld (that is, backup withholding) on interest income, dividends, or other income, check the box and include the amount withheld on income retained by the estate or trust in the total for line 24e.

  Report on Schedule K-1 (Form 1041), box 13, code B, any credit for backup withholding on income distributed to the beneficiary.

Line 24f—Credit for Tax Paid on Undistributed Capital Gains

Attach Copy B of Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

Line 24g—Credit for Federal Tax on Fuels

Enter any credit for federal excise taxes paid on fuels that are ultimately used for nontaxable purposes (for example, an off-highway business use). Attach Form 4136, Credit for Federal Tax Paid on Fuels. See Pub. 510, Excise Taxes, for more information.

Line 26—Estimated Tax Penalty

If line 27 is at least $1,000 and more than 10% of the tax shown on Form 1041, or the estate or trust underpaid its 2013 estimated tax liability for any payment period, it may owe a penalty. See Form 2210 to determine whether the estate or trust owes a penalty and to figure the amount of the penalty.

Note.

The penalty may be waived under certain conditions. See Pub. 505, Tax Withholding and Estimated Tax, for details.

Line 27—Tax Due

You must pay the tax in full when the return is filed. You may pay by EFTPS. For more information about EFTPS, see Electronic Deposits, earlier. Also, you may pay by check or money order or by credit or debit card.

To pay by check or money order.    
If you pay by check or money order:
  • Make it payable to “United States Treasury”,

  • Make sure the name of the estate or trust appears on the payment,

  • Write the estate’s or trust’s EIN and “2013 Form 1041” on the payment,

  • Consider completing the 2013 Form 1041-V, and

  • Enclose, but do not attach, the payment (and Form 1041-V, if completed) with Form 1041.

To pay by credit or debit card.    
For information on paying your taxes electronically, including by credit or debit card, go to www.irs.gov/e-pay.

Line 29a—Credited to 2014 Estimated Tax

Enter the amount from line 28 that you want applied to the estate's or trust's 2014 estimated tax.

Schedule A—Charitable Deduction

General Instructions

Generally, any part of the gross income of an estate or trust (other than a simple trust) that, under the terms of the will or governing instrument, is paid (or treated as paid) during the tax year for a charitable purpose specified in section 170(c) is allowed as a deduction to the estate or trust. It is not necessary that the charitable organization be created or organized in the United States.

A pooled income fund or a section 4947(a)(1) nonexempt charitable trust treated as a private foundation must attach a separate sheet to Form 1041 instead of using Schedule A of Form 1041 to figure the charitable deduction.

Additional return to be filed by trusts.   Trusts, other than split-interest trusts or nonexempt charitable trusts, that claim a charitable deduction also file Form 1041-A unless the trust is required to distribute currently to the beneficiaries all the income for the year determined under section 643(b) and related regulations.

  Pooled income funds and charitable lead trusts also file Form 5227. See Form 5227 for information about any exceptions.

Election to treat contributions as paid in the prior tax year.   The fiduciary of an estate or trust may elect to treat as paid during the tax year any amount of gross income received during that tax year or any prior tax year that was paid in the next tax year for a charitable purpose.

  For example, if a calendar year estate or trust makes a qualified charitable contribution on February 7, 2014, from income earned in 2013 or prior, then the fiduciary can elect to treat the contribution as paid in 2013.

  To make the election, the fiduciary must file a statement with Form 1041 for the tax year in which the contribution is treated as paid. This statement must include:
  1. The name and address of the fiduciary;

  2. The name of the estate or trust;

  3. An indication that the fiduciary is making an election under section 642(c)(1) for contributions treated as paid during such tax year;

  4. The name and address of each organization to which any such contribution is paid; and

  5. The amount of each contribution and date of actual payment or, if applicable, the total amount of contributions paid to each organization during the next tax year, to be treated as paid in the prior tax year.

  The election must be filed by the due date (including extensions) for Form 1041 for the next tax year. If the original return was filed on time, you may make the election on an amended return filed no later than 6 months after the due date of the return (excluding extensions). Write “Filed pursuant to section 301.9100-2” at the top of the amended return and file it at the same address you used for your original return.

  For more information about the charitable deduction, see section 642(c) and related regulations.

Specific Instructions

Line 1—Amounts Paid or Permanently Set Aside for Charitable Purposes From Gross Income

Enter amounts that were paid for a charitable purpose out of the estate's or trust's gross income, including any capital gains that are attributable to income under the governing instrument or local law. Include amounts paid during the tax year from gross income received in a prior tax year, but only if no deduction was allowed for any prior tax year for these amounts.

Estates, and certain trusts, may claim a deduction for amounts permanently set aside for a charitable purpose from gross income. Such amounts must be permanently set aside during the tax year to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit.

For a trust to qualify, the trust may not be a simple trust, and the set aside amounts must be required by the terms of a trust instrument that was created on or before October 9, 1969.

Further, the trust instrument must provide for an irrevocable remainder interest to be transferred to or for the use of an organization described in section 170(c); or the trust must have been created by a grantor who was at all times after October 9, 1969, under a mental disability to change the terms of the trust.

Also, certain testamentary trusts that were established by a will that was executed on or before October 9, 1969, may qualify. See Regulations section 1.642(c)-2(b).

Do not include any capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes. Instead, enter these amounts on line 4.

Line 2—Tax-Exempt Income Allocable to Charitable Contributions

Any estate or trust that pays or sets aside any part of its income for a charitable purpose must reduce the deduction by the portion allocable to any tax-exempt income. If the governing instrument specifically provides as to the source from which amounts are paid, permanently set aside, or to be used for charitable purposes, the specific provisions control. In all other cases, determine the amount of tax-exempt income allocable to charitable contributions by multiplying line 1 by a fraction, the numerator of which is the total tax-exempt income of the estate or trust, and the denominator of which is the gross income of the estate or trust. Do not include in the denominator any losses allocated to corpus.

Line 4—Capital Gains for the Tax Year Allocated to Corpus and Paid or Permanently Set Aside for Charitable Purposes

Enter the total of all capital gains for the tax year that are:

  • Allocated to corpus, and

  • Paid or permanently set aside for charitable purposes.

Line 6—Section 1202 Exclusion Allocable to Capital Gains Paid or Permanently Set Aside for Charitable Purposes

If the exclusion of gain from the sale or exchange of qualified small business (QSB) stock was claimed, enter the part of the gain included on Schedule A, lines 1 and 4, that was excluded under section 1202.

Schedule B—Income Distribution Deduction

General Instructions

If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute any other amounts to beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction.

Note.

Use Schedule I (Form 1041) to compute the DNI and income distribution deduction on a minimum tax basis.

Pooled income funds.    Do not complete Schedule B for these funds. Instead, attach a separate statement to support the computation of the income distribution deduction. See Pooled Income Funds, earlier, for more information.

Separate share rule.   If a single trust or an estate has more than one beneficiary, and if different beneficiaries have substantially separate and independent shares, their shares are treated as separate trusts or estates for the sole purpose of determining the DNI allocable to the respective beneficiaries.

  If the separate share rule applies, figure the DNI allocable to each beneficiary on a separate sheet and attach the sheet to this return. Any deduction or loss that is applicable solely to one separate share of the trust or estate is not available to any other share of the same trust or estate.

  For more information, see section 663(c) and related regulations.

Withholding of tax on foreign persons.   The fiduciary may be liable for withholding tax on distributions to beneficiaries who are foreign persons. For more information, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, and Forms 1042 and 1042-S.

Specific Instructions

Line 1—Adjusted Total Income

Generally, enter on line 1, Schedule B, the amount from line 17 on page 1 of Form 1041. However, if both line 4 and line 17 on page 1 of Form 1041 are losses, enter on line 1, Schedule B, the smaller of those losses. If line 4 is zero or a gain and line 17 is a loss, enter zero on line 1, Schedule B.

If you are filing for a simple trust, subtract from adjusted total income any extraordinary dividends or taxable stock dividends included on page 1, line 2, and determined under the governing instrument and applicable local law to be allocable to corpus.

Line 2—Adjusted Tax-Exempt Interest

To figure the adjusted tax-exempt interest:

Step 1. Add tax-exempt interest income on line 2 of Schedule A, any expenses allowable under section 212 allocable to tax-exempt interest, and any interest expense allocable to tax-exempt interest.

Step 2. Subtract the Step 1 total from the amount of tax-exempt interest (including exempt-interest dividends) received.

Section 212 expenses that are directly allocable to tax-exempt interest are allocated only to tax-exempt interest. A reasonable proportion of section 212 expenses that are indirectly allocable to both tax-exempt interest and other income must be allocated to each class of income.

Figure the interest expense allocable to tax-exempt interest according to the guidelines in Rev. Proc. 72-18, 1972-1 C.B. 740.

See Regulations sections 1.643(a)-5 and 1.265-1 for more information.

Line 3

Include all capital gains, whether or not distributed, that are attributable to income under the governing instrument or local law. For example, if the trustee distributed 50% of the current year's capital gains to the income beneficiaries (and reflects this amount in column (1), line 19 of Schedule D (Form 1041)), but under the governing instrument all capital gains are attributable to income, then include 100% of the capital gains on line 3. If the amount on Schedule D (Form 1041), line 19, column (1), is a net loss, enter zero.

If the exclusion of gain from the sale or exchange of QSB stock was claimed, do not reduce the gain on line 3 by any amount excluded under section 1202.

Line 5

In figuring the amount of long-term and short-term capital gain for the tax year included on Schedule A, line 1, the specific provisions of the governing instrument control if the instrument specifically provides as to the source from which amounts are paid, permanently set aside, or to be used for charitable purposes.

In all other cases, determine the amount to enter by multiplying line 1 of Schedule A by a fraction, the numerator of which is the amount of net capital gains that are included in the accounting income of the estate or trust (that is, not allocated to corpus) and are distributed to charities, and the denominator of which is all items of income (including the amount of such net capital gains) included in the DNI.

Reduce the amount on line 5 by any allocable section 1202 exclusion.

Line 8—Accounting Income

If you are filing for a decedent's estate or a simple trust, skip this line. If you are filing for a complex trust, enter the income for the tax year determined under the terms of the governing instrument and applicable local law. Do not include extraordinary dividends or taxable stock dividends determined under the governing instrument and applicable local law to be allocable to corpus.

Lines 9 and 10

Do not include any:

  • Amount that was deducted on the prior year's return that was required to be distributed in the prior year;

  • Amount that is paid or permanently set aside for charitable purposes or otherwise qualifying for the charitable deduction; or

  • Amount that is properly paid or credited as a gift or bequest of a specific amount of money or specific property.  
     
    Note. An amount that can be paid or credited only from income is not considered a gift or bequest. Also, to qualify as a gift or bequest, the amount must be paid in three or fewer installments.

Line 9—Income Required To Be Distributed Currently

Line 9 is to be completed by all simple trusts as well as complex trusts and decedent's estates that are required to distribute income currently, whether it is distributed or not. The determination of whether trust income is required to be distributed currently depends on the terms of the governing instrument and the applicable local law.

The line 9 distributions are referred to as first tier distributions and are deductible by the estate or trust to the extent of the DNI. The beneficiary includes such amounts in his or her income to the extent of his or her proportionate share of the DNI.

Line 10—Other Amounts Paid, Credited, or Otherwise Required To Be Distributed

Line 10 is to be completed only by a decedent's estate or complex trust. These distributions consist of any other amounts paid, credited, or required to be distributed and are referred to as second tier distributions. Such amounts include annuities to the extent not paid out of income, mandatory and discretionary distributions of corpus, and distributions of property in kind.

If Form 1041-T was timely filed to elect to treat estimated tax payments as made by a beneficiary, the payments are treated as paid or credited to the beneficiary on the last day of the tax year and must be included on line 10.

Unless a section 643(e)(3) election is made, the value of all noncash property actually paid, credited, or required to be distributed to any beneficiaries is the smaller of:

  1. The estate's or trust's adjusted basis in the property immediately before distribution, plus any gain or minus any loss recognized by the estate or trust on the distribution (basis of beneficiary), or

  2. The FMV of such property.

If a section 643(e)(3) election is made by the fiduciary, then the amount entered on line 10 will be the FMV of the property.

A fiduciary of a complex trust or a decedent's estate may elect to treat any amount paid or credited to a beneficiary within 65 days following the close of the tax year as being paid or credited on the last day of that tax year. To make this election, see the instructions for Question 6, later.

The beneficiary includes the amounts on line 10 in his or her income only to the extent of his or her proportionate share of the DNI.

Complex trusts.   If the second tier distributions exceed the DNI allocable to the second tier, the trust may have an accumulation distribution. See the line 11 instructions below.

Line 11—Total Distributions

If line 11 is more than line 8, and you are filing for a complex trust that has previously accumulated income, see the instructions for Schedule J, later, to see if you must complete Schedule J (Form 1041).

Line 12—Adjustment for Tax-Exempt Income

In figuring the income distribution deduction, the estate or trust is not allowed a deduction for any item of the DNI that is not included in the gross income of the estate or trust. Thus, for purposes of figuring the allowable income distribution deduction, the DNI (line 7) is figured without regard to any tax-exempt interest.

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI (line 7) is less than or equal to line 11, then enter on line 12 the amount from line 2.

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI is more than line 11 (that is, the estate or trust made a distribution that is less than the DNI), then figure the adjustment by multiplying line 2 by a fraction, the numerator of which is the total distributions (line 11), and the denominator of which is the DNI (line 7). Enter the result on line 12.

If line 11 includes tax-exempt income other than tax-exempt interest, figure line 12 by subtracting the total of the following from tax-exempt income included on line 11:

  1. The charitable contribution deduction allocable to such tax-exempt income, and

  2. Expenses allocable to tax-exempt income.

Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion of expenses indirectly allocable to both tax-exempt income and other income must be allocated to each class of income.

Schedule G—Tax Computation

Line 1a

2013 tax rate schedule.   For tax years beginning in 2013, figure the tax using the Tax Rate Schedule below and enter the tax on line 1a. However, see the Instructions for Schedule D (Form 1041) and the Qualified Dividends Tax Worksheet later.
2013 Tax Rate Schedule
If taxable income is:      
Over— But not over— Its tax is: Of the amount over—
$0 $2,450 15% $0
2,450 5,700 $367.50 + 25% 2,450
5,700 8,750 1,180.00 + 28% 5,700
8,750 11,950 2,034.00 + 33% 8,750
11,950 ----- 3,090.00 + 39.6% 11,950
         

Schedule D (Form 1041) and Schedule D Tax Worksheet.   Use Part V of Schedule D (Form 1041) or the Schedule D Tax Worksheet, whichever is applicable, to figure the estate's or trust's tax if the estate or trust files Schedule D (Form 1041) and has:
  • A net capital gain and any taxable income, or

  • Qualified dividends on line 2b(2) of Form 1041 and any taxable income.

Qualified Dividends Tax Worksheet.    If you do not have to complete Part I or Part II of Schedule D and the estate or trust has an amount entered on line 2b(2) of Form 1041 and any taxable income (line 22), then figure the estate's or trust's tax using the worksheet, later, and enter the tax on line 1a.

Note.

You must reduce the amount you enter on line 2b(2) of Form 1041 by the portion of the section 691(c) deduction claimed on line 19 of Form 1041 if the estate or trust received qualified dividends that were IRD.

Line 1c—AMT.   Attach Schedule I (Form 1041) if:
  • The estate or trust must complete Schedule B.

  • The estate or trust claims a credit on line 2b, 2c, or 2d of Schedule G.

  • The estate's or trust's share of alternative minimum taxable income (line 29 of Schedule I (Form 1041)) exceeds $23,100.

Enter the amount from line 56 of Schedule I (Form 1041) on line 1c.

Qualified Dividends Tax Worksheet—Schedule G, line 1a

Caution: Do not use this worksheet if the estate or trust must complete Schedule D (Form 1041).    
1.   Enter the amount from Form 1041, line 22 1.        
2.   Enter the amount from Form 1041, line 2b(2) 2.            
3.   If you are claiming investment interest expense on Form 4952, enter the amount from line 4g; otherwise enter -0- 3.            
4.   Subtract line 3 from line 2. If zero or less, enter -0- 4.        
5.   Subtract line 4 from line 1. If zero or less, enter -0- 5.        
6.   Enter the smaller of the amount on line 1 or $2,450 6.        
7.   Enter the smaller of the amount on line 5 or line 6 7.        
8.   Subtract line 7 from line 6. If zero or less, enter -0-. This amount is taxed at 0% 8.    
9.   Enter the smaller of line 1 or line 4 9.        
10.   Subtract line 8 from line 4 10.        
11.   Enter the smaller of line 1 or $11,950 11.        
12.   Add lines 5 and 8 12.        
13.   Subtract line 12 from line 11. If zero or less, enter -0- 13.        
14.   Enter the smaller of line 10 or line 13 14.        
15.   Multiply line 14 by 15% (.15) 15.    
16.   Enter the amount from line 9 16.        
17.   Add lines 8 and 14 17.        
18.   Subtract line 17 from line 16. If zero or less, enter -0- 18.        
19.   Multiply line 18 by 20% (.20) 19.    
20.   Figure the tax on the amount on line 5. Use the 2013 Tax Rate Schedule 20.    
21.   Add lines 15, 19 and 20 21.    
22.   Figure the tax on the amount on line 1. Use the 2013 Tax Rate Schedule 22.    
23.   Tax on all taxable income. Enter the smaller of line 21 or line 22 here and on Sch. G, line 1a 23.    

Line 2a—Foreign Tax Credit

Attach Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), if you elect to claim credit for income or profits taxes paid or accrued to a foreign country or a U.S. possession. The estate or trust may claim credit for that part of the foreign taxes not allocable to the beneficiaries (including charitable beneficiaries). Enter the estate's or trust's share of the credit on line 2a. See Pub. 514, Foreign Tax Credit for Individuals, for details.

Line 2b—General Business Credit

Do not include any amounts that are allocated to a beneficiary. Credits that are allocated between the estate or trust and the beneficiaries are listed in the instructions for Schedule K-1, box 13, later. Generally, these credits are apportioned on the basis of the income allocable to the estate or trust and the beneficiaries.

Enter on line 2b the estate's or trust's total general business credit allowed for the current year from Form 3800. The estate or trust must file Form 3800 to claim any of the general business credits. Generally, if the estate's or trust's only source of a credit is from a pass-through entity and the beneficiary is not entitled to an allocable share of a credit, you are not required to complete the source form for that credit. However, certain credits have limitations and special computations that may require you to complete the source form. See the Instructions for Form 3800 for more information.

Line 2c—Credit for Prior Year Minimum Tax

An estate or trust that paid AMT in a previous year may be eligible for a minimum tax credit in 2013. See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts.

Line 2d—Bond Credits

Complete and attach Form 8912, Credit to Holders of Tax Credit Bonds, if the estate or trust claims a credit for holding a tax credit bond. Also, be sure to include the credit in interest income.

Line 2e—Total Credits

To claim a credit allowable to the estate or trust other than the credits entered on lines 2a through 2d, include the allowable credit in the total for line 2e. Complete and attach the appropriate form and write the form number and amount of the allowable credit on the dotted line to the left of the entry space.

Line 4—Net Investment Income Tax

Enter the amount of net investment income tax calculated and attach Form 8960. See the Instructions for Form 8960 to calculate the tax and Net Investment Income Tax, later, for more information.

Line 5—Recapture Taxes

Recapture of investment credit.   If the estate or trust disposed of investment credit property or changed its use before the end of the recapture period, see Form 4255, Recapture of Investment Credit, to figure the recapture tax allocable to the estate or trust. Include the tax on line 5 and write “ICR” on the dotted line to the left of the entry space.

Recapture of low-income housing credit.   If the estate or trust disposed of property (or there was a reduction in the qualified basis of the property) on which the low-income housing credit was claimed, see Form 8611, Recapture of Low-Income Housing Credit, to figure any recapture tax allocable to the estate or trust. Include the tax on line 5 and write “LIHCR” on the dotted line to the left of the entry space.

Recapture of qualified electric vehicle credit.   If the estate or trust claimed the qualified electric vehicle credit in a prior tax year for a vehicle that ceased to qualify for the credit, part or all of the credit may have to be recaptured. See Regulations section 1.30-1(b) for details. If the estate or trust owes any recapture tax, include it on line 5 and write “QEVCR” on the dotted line to the left of the entry space.

Recapture of the Indian employment credit.   Generally, if the estate or trust terminates a qualified employee less than 1 year after the date of initial employment, any Indian employment credit allowed for a prior tax year by reason of wages paid or incurred to that employee must be recaptured. See Form 8845 for details. If the estate or trust owes any recapture tax, include it on line 5 and write “IECR” on the dotted line to the left of the entry space.

Recapture of the new markets credit.   If the estate or trust owes any new markets recapture tax, include it on line 5 and write “NMCR” on the dotted line to the left of the entry space. For more information, including how to figure the recapture amount, see section 45D(g).

Recapture of the credit for employer-provided child care facilities.   If the facility ceased to operate as a qualified child care facility or there was a change in ownership, part or all of the credit may have to be recaptured. See Form 8882 for details. If the estate or trust owes any recapture tax, include it on line 5 and write “ECCFR” on the dotted line to the left of the entry space.

Recapture of the alternative motor vehicle credit.   See section 30B(h)(8) for details. Include the tax on line 5 and write “AMVCR” on the dotted line to the left of the entry space.

Recapture of the alternative fuel vehicle refueling property credit.    See section 30C(e)(5) for details. Include the tax on line 5 and write “ARPCR” on the dotted line to the left of the entry space.

Line 6—Household Employment Taxes

If any of the following apply, get Schedule H (Form 1040), Household Employment Taxes, and its instructions, to see if the estate or trust owes these taxes.

  1. The estate or trust paid any one household employee cash wages of $1,800 or more in 2013. Cash wages include wages paid by checks, money orders, etc. When figuring the amount of cash wages paid, combine cash wages paid by the estate or trust with cash wages paid to the household employee in the same calendar year by the household of the decedent or beneficiary for whom the administrator, executor, or trustee of the estate or trust is acting.

  2. The estate or trust withheld federal income tax during 2013 at the request of any household employee.

  3. The estate or trust paid total cash wages of $1,000 or more in any calendar quarter of 2012 or 2013 to household employees.

Note.

See Amended Schedule H (Form 1040) under F. Initial Return, Amended Return, etc., earlier for information on filing an amended Schedule H (Form 1040) for a Form 1041.

Line 7—Total Tax

Tax on ESBTs.   Attach the tax computation to the return. To the left of the line 7 entry space, write “Sec. 641(c)” and the amount of tax on the S corporation items. Include this amount in the total tax on line 7.

  See Electing Small Business Trusts (ESBTs), earlier, for the special tax computation rules that apply to the portion of an ESBT consisting of stock in one or more S corporations.

Interest on deferred tax attributable to installment sales of certain timeshares and residential lots and certain nondealer real property installment obligations.   If an obligation arising from the disposition of real property to which section 453(l) or 453A applies is outstanding at the close of the year, the estate or trust must include the interest due under section 453(l)(3)(B) or 453A(c), whichever is applicable, in the amount to be entered on line 7 of Schedule G, Form 1041, with the notation “Section 453(l) interest” or “Section 453A(c) interest,” whichever is applicable. Attach a schedule showing the computation.

Form 4970, Tax on Accumulation Distribution of Trusts.   Include on this line any tax due on an accumulation distribution from a trust. To the left of the entry space, write “From Form 4970” and the amount of the tax.

Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.   Include the interest due under the look-back method of section 460(b)(2).  
To the left of the entry space, write “From Form 8697” and the amount of interest due.

Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method.   Include the interest due under the look-back method of section 167(g)(2). To the left of the entry space, write “From Form 8866” and the amount of interest due.

Interest on deferral of gain from certain constructive ownership transactions.   Include the interest due under section 1260(b) on any deferral of gain from certain constructive ownership transactions. To the left of the entry space, write “1260(b)” and the amount of interest due.

Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.   If the estate or trust fails to receive the minimum distribution under section 4974, use Form 5329 to pay the excise tax. To the left of the entry space, write “From Form 5329” and the amount of the tax.

Net Investment Income Tax

For taxable years beginning after December 31, 2012, certain estates and trusts may be subject to the Net Investment Income Tax (NIIT). Estates and trusts use Form 8960 to report their Net Investment Income (NII) and calculate the tax. The amount of NIIT payable by the estate or trust is reported on Form 1041, Schedule G, line 4.

The NIIT is imposed on estates and trusts to the extent that they have undistributed net investment income and adjusted gross income (AGI) exceeding $11,950. See instructions to line 15c for the calculation of an estate or trust’s AGI. The following types of estates and trusts may owe the NIIT in addition to their regular income tax liability:

  • Decedent’s estates,

  • Simple and complex trusts,

  • Electing small business trusts (ESBTs),

  • Pooled income funds, and

  • Bankruptcy estates.

However, in the case of bankruptcy estates, the adjusted gross income threshold is $125,000.

Calculation of Net Investment Income.   In general, an estate or trust’s NII is calculated in the same way as an individual. However, there are special rules for the calculation of NII in the case of an ESBT. See instructions to Form 8960 and Regulations section 1.1411-3(e) for information on the calculation (and Regulations section 1.1411-3(c)(1) for information on the ESBT calculation).

Distributions on Net Investment Income.   The NIIT is imposed on estates and trusts to the extent it has undistributed net investment income. In order to arrive at the estate or trust’s undistributed net investment income, the estate or trust’s NII is reduced for (1) distributions of NII to beneficiaries, and (2) NII allocable to charities when the estate or trust is allowed a deduction under section 642(c). Instructions for Form 8960, line 18, provide more information on the calculation of undistributed net investment income.

NII allocable to the deduction under section 642(c).   An estate, trust, or pooled income fund’s NII is reduced by the amount of NII allocable to the charitable deduction allowed under section 642(c). In the case of an estate, trust, or pooled income fund that has NII and non-NII income in a year when a section 642(c) deduction is claimed, the amount of the NII deduction allocable to the section 642(c) deduction will be less than the amount reported on Form 1041, Schedule A, line 7 (or on the separate calculation in the case of a pooled income fund).

Beneficiary reporting.   In general, the amount of the income distribution deduction (from Form 1041, Schedule B, line 15) that reduces the estate or trust’s NII will be the amount of NII that will be taxable to the beneficiaries on their Schedules K-1(Form 1041).

  The Schedule K-1 has a new code H in box 14 to report the amount of net investment income distributed to the beneficiary. The amount reported in code H represents an adjustment (either positive or negative) that the beneficiary must use in completing its Form 8960 (if necessary). In the case where the trust’s income distribution deduction allowed in calculating undistributed net investment income is less than the amount on Schedule B, line 15, then code H will show a negative number that is the difference between the two amounts. In the case of an estate or trust that issues more than one Schedule K-1 for a year, the sum of the amounts reported in code H on all of the Schedules K-1 will be the difference between Schedule B, line 15, and the amount deducted on Form 8960, line 18b, for amounts of NII distributed to a beneficiary.

  
The beneficiary's NII will equal all taxable amounts reported on the Schedule K-1, adjusted by the amount reported in box 14, code H.

  
The only instance where code H will be a positive number is when:
  • The estate or trust owns directly, or indirectly, an (a) interest in a section 1291 fund, or (b) interest in a controlled foreign corporation or qualified electing fund and no election under Regulations section 1.1411–10(g) has been made with respect to that interest, and

  • The distribution from one of the entities described above is (a) net investment income to the estate or trust, but not included in its taxable income, and (b) the distributions from the estate or trust to the beneficiary(s) in the year exceed the amount of the income distribution deduction allowed for regular tax purposes (from Schedule B, line 15).

Special rules.   In the final year of an estate or trust, deductions in excess of income may be reported to the beneficiary on Schedule K-1, box 11. These deductions may also be deductible by the beneficiary for NIIT purposes. In this situation, the terminating estate or trust should provide the beneficiary information regarding whether the amounts reported in box 11, codes A through D, include any amounts that are deductible for NIIT purposes. See Regulations section 1.1411-4(g)(4).

Other Information

Question 1

If the estate or trust received tax-exempt income, figure the allocation of expenses between tax-exempt and taxable income on a separate sheet and attach it to the return. Enter only the deductible amounts on the return. Do not figure the allocation on the return itself. For more information, see the instructions for Allocation of Deductions for Tax-Exempt Income, earlier.

Report the amount of tax-exempt interest income received or accrued in the space provided below Question 1.

Also, include any exempt-interest dividends the estate or trust received as a shareholder in a mutual fund or other regulated investment company.

Question 2

All salaries, wages, and other compensation for personal services must be included on the return of the person who earned the income, even if the income was irrevocably assigned to a trust by a contract assignment or similar arrangement.

The grantor or person creating the trust is considered the owner if he or she keeps “beneficial enjoyment” of or substantial control over the trust property. The trust's income, deductions, and credits are allocable to the owner.

If you checked “Yes” for Question 2, see Special Reporting Instructions, earlier.

Question 3

Check the “Yes” box and enter the name of the foreign country if either 1 or 2 below applies.

  1. The estate or trust owns more than 50% of the stock in any corporation that owns one or more foreign bank accounts.

  2. At any time during the year the estate or trust had an interest in or signature or other authority over a bank, securities, or other financial account in a foreign country.

Exception.   Check “No” if either of the following applies to the estate or trust:
  • The combined value of the accounts was $10,000 or less during the whole year, or

  • The accounts were with a U.S. military banking facility operated by a U.S. financial institution.

  If you checked “Yes” for Question 3, electronically file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly Form TD F 90–22.1) by June 30, 2014, with the Department of the Treasury using the FinCEN's BSA E-Filing Sytem. Because FinCEN Form 114 is not a tax form, do not file it with Form 1041.

   See www.fincen.gov for more information.

If you are required to file FinCEN Form 114 but do not, you may have to pay a penalty of up to $10,000 (or more in some cases).

Question 4

The estate or trust may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, if:

  • It directly or indirectly transferred property or money to a foreign trust. For this purpose, any U.S. person who created a foreign trust is considered a transferor;

  • It is treated as the owner of any part of the assets of a foreign trust under the grantor trust rules; or

  • It received a distribution from a foreign trust.

    An owner of a foreign trust must ensure that the trust files an annual information return on Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

Question 5

An estate or trust claiming an interest deduction for qualified residence interest (as defined in section 163(h)(3)) on seller-provided financing must include on an attachment to the 2013 Form 1041 the name, address, and TIN of the person to whom the interest was paid or accrued (that is, the seller).

If the estate or trust received or accrued such interest, it must provide identical information on the person liable for such interest (that is, the buyer). This information does not need to be reported if it duplicates information already reported on Form 1098.

Question 6

To make the section 663(b) election to treat any amount paid or credited to a beneficiary within 65 days following the close of the tax year as being paid or credited on the last day of that tax year, check the box. This election can be made by the fiduciary of a complex trust or the executor of a decedent's estate. For the election to be valid, you must file Form 1041 by the due date (including extensions). Once made, the election is irrevocable.

Question 7

To make the section 643(e)(3) election to recognize gain on property distributed in kind, check the box and see the Instructions for Schedule D (Form 1041).

Question 9

Generally, a beneficiary is a skip person if the beneficiary is in a generation that is two or more generations below the generation of the transferor to the trust.

To determine if a beneficiary that is a trust is a skip person, and for exceptions to the general rules, see the definition of a skip person in the instructions for Schedule R of Form 706.

Schedule J (Form 1041) — Accumulation Distribution for Certain Complex Trusts

General Instructions

Use Schedule J (Form 1041) to report an accumulation distribution for a domestic complex trust that was:

  • Previously treated at any time as a foreign trust (unless an exception is provided in future regulations), or

  • Created before March 1, 1984, unless that trust would not be aggregated with other trusts under the rules of section 643(f) if that section applied to the trust.

An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed (other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed currently. To have an accumulation distribution, the distribution must exceed the accounting income of the trust.

Specific Instructions

Part I—Accumulation Distribution in 2013

Line 1—Distribution Under Section 661(a)(2)

Enter the amount from Form 1041, Schedule B, line 10, for 2013. This is the amount properly paid, credited, or required to be distributed other than the amount of income for the current tax year required to be distributed currently.

Line 2—DNI

Enter the amount from Form 1041, Schedule B, line 7, for 2013. This is the amount of DNI for the current tax year determined under section 643(a).

Line 3—Distribution Under Section 661(a)(1)

Enter the amount from Form 1041, Schedule B, line 9, for 2013. This is the amount of income for the current tax year required to be distributed currently.

Line 5—Accumulation Distribution

If line 11 of Form 1041, Schedule B, is more than line 8 of Form 1041, Schedule B, complete the rest of Schedule J and file it with Form 1041, unless the trust has no previously accumulated income.

Generally, amounts accumulated before a beneficiary reaches age 21 may be excluded by the beneficiary. See sections 665 and 667(c) for exceptions relating to multiple trusts. The trustee reports to the IRS the total amount of the accumulation distribution before any reduction for income accumulated before the beneficiary reaches age 21. If the multiple trust rules do not apply, the beneficiary claims the exclusion when filing Form 4970, as you may not be aware that the beneficiary may be a beneficiary of other trusts with other trustees.

For examples of accumulation distributions that include payments from one trust to another trust, and amounts distributed for a dependent's support, see Regulations section 1.665(b)-1A(b).

Part II—Ordinary Income Accumulation Distribution

Enter the applicable year at the top of each column for each throwback year.

Line 6—DNI for Earlier Years

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969–1977 Form 1041, Schedule C, line 5
1978–1979 Form 1041, line 61
1980 Form 1041, line 60
1981–1982 Form 1041, line 58
1983–1996 Form 1041, Schedule B, line 9
1997–2012 Form 1041, Schedule B, line 7

For information about throwback years, see the instructions for line 13. For purposes of line 6, in figuring the DNI of the trust for a throwback year, subtract any estate tax deduction for IRD if the income is includible in figuring the DNI of the trust for that year.

Line 7—Distributions Made During Earlier Years

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969–1977 Form 1041, Schedule C, line 8
1978 Form 1041, line 64
1979 Form 1041, line 65
1980 Form 1041, line 64
1981–1982 Form 1041, line 62
1983–1996 Form 1041, Schedule B, line 13
1997–2012 Form 1041, Schedule B, line 11

Line 11—Prior Accumulation Distribution Thrown Back to Any Throwback Year

Enter the amount of prior accumulation distributions thrown back to the throwback years. Do not enter distributions excluded under section 663(a)(1) for gifts, bequests, etc.

Line 13—Throwback Years

Allocate the amount on line 5 that is an accumulation distribution to the earliest applicable year first, but do not allocate more than the amount on line 12 for any throwback year. An accumulation distribution is thrown back first to the earliest preceding tax year in which there is undistributed net income (UNI). Then, it is thrown back beginning with the next earliest year to any remaining preceding tax years of the trust. The portion of the accumulation distribution allocated to the earliest preceding tax year is the amount of the UNI for that year. The portion of the accumulation distribution allocated to any remaining preceding tax year is the amount by which the accumulation distribution is larger than the total of the UNI for all earlier preceding tax years.

A tax year of a trust during which the trust was a simple trust for the entire year is not a preceding tax year unless (a) during that year the trust received outside income, or (b) the trustee did not distribute all of the trust's income that was required to be distributed currently for that year. In this case, UNI for that year must not be more than the greater of the outside income or income not distributed during that year.

The term “outside income means amounts that are included in the DNI of the trust for that year but that are not “income” of the trust as defined in Regulations section 1.643(b)-1. Some examples of outside income are: (a) income taxable to the trust under section 691; (b) unrealized accounts receivable that were assigned to the trust; and (c) distributions from another trust that include the DNI or UNI of the other trust.

Line 16—Tax-Exempt Interest Included on Line 13

For each throwback year, divide line 15 by line 6 and multiply the result by the following:

Throwback year(s)   Amount from line
1969–1977 Form 1041, Schedule C, line 2(a)
1978–1979 Form 1041, line 58(a)
1980 Form 1041, line 57(a)
1981–1982 Form 1041, line 55(a)
1983–2012 Form 1041, Schedule B, line 2

Part III—Taxes Imposed on Undistributed Net Income

For the regular tax computation, if there is a capital gain, complete lines 18 through 25 for each throwback year. If the trustee elected the alternative tax on capital gains, complete lines 26 through 31 instead of lines 18 through 25 for each applicable year. If there is no capital gain for any year, or there is a capital loss for every year, enter on line 9 the amount of the tax for each year identified in the instruction for line 18 and do not complete Part III. If the trust received an accumulation distribution from another trust, see Regulations section 1.665(b)-1A.

Note.

The alternative tax on capital gains was repealed for tax years beginning after December 31, 1978. The maximum rate on net capital gain for 1981, 1987, and 1991 through 2012 is not an alternative tax for this purpose.

Line 18—Regular Tax

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969–1976 Form 1041, page 1, line 24
1977 Form 1041, page 1, line 26
1978–1979 Form 1041, line 27
1980–1984 Form 1041, line 26c
1985–1986 Form 1041, line 25c
1987 Form 1041, line 22c
1988–2012 Form 1041, Schedule G, line 1a

Line 19—Trust's Share of Net Short-Term Gain

For each throwback year, enter the smaller of the capital gain from the two lines indicated. If there is a capital loss or a zero on either or both of the two lines indicated, enter zero on line 19.

Throwback year(s) Amount from line
1969–1970 Schedule D, line 10, column 2, or
  Schedule D, line 12, column 2
1971–1978 Schedule D, line 14, column 2, or
  Schedule D, line 16, column 2
1979 Schedule D, line 18, column (b), or
  Schedule D, line 20, column (b)
1980–1981 Schedule D, line 14, column (b), or
  Schedule D, line 16, column (b)
1982 Schedule D, line 16, column (b), or
  Schedule D, line 18, column (b)
1983–1996 Schedule D, line 15, column (b), or
  Schedule D, line 17, column (b)
1997–2002 Schedule D, line 14, column (2), or
  Schedule D, line 16, column (2)
2003 Schedule D, line 14a, column (2), or
  Schedule D, line 16a, column (2)
2004–2012 Schedule D, line 13, column (2), or
  Schedule D, line 15, column (2)

Line 20—Trust's Share of Net Long-Term Gain

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969–1970 50% of Schedule D, line 13(e)
1971–1977 50% of Schedule D, line 17(e)
1978 Schedule D, line 17(e), or line
  31, whichever is applicable,
  less Form 1041, line 23
1979 Schedule D, line 25 or line 27,
  whichever is applicable, less
  Form 1041, line 23
1980–1981 Schedule D, line 21, less
  Schedule D, line 22
1982 Schedule D, line 23, less
  Schedule D, line 24
1983–1986 Schedule D, line 22, less
  Schedule D, line 23
1987–1996 Schedule D, the smaller  
of any gain on line 16  
or line 17, column (b)
1997–2001 Schedule D, the smaller
  of any gain on line 15c or
  line 16, column (2)
2002 Schedule D, the smaller
  of any gain on line 15a or
  line 16, column (2)
2003 Schedule D, the smaller
  of any gain on line 15a or
  line 16a, column (2)
2004–2012 Schedule D, the smaller
  of any gain on line 14a 
or line 15, column (2)

Line 22—Taxable Income

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969–1976 Form 1041, page 1, line 23
1977 Form 1041, page 1, line 25
1978–1979 Form 1041, line 26
1980–1984 Form 1041, line 25
1985–1986 Form 1041, line 24
1987 Form 1041, line 21
1988–1996 Form 1041, line 22
1997 Form 1041, line 23
1998–2012 Form 1041, line 22

Line 26—Tax on Income Other Than Long-Term Capital Gain

Enter the applicable amounts as follows:

Throwback year(s)   Amount from line
1969 Schedule D, line 20
1970 Schedule D, line 19
1971 Schedule D, line 50
1972–1975 Schedule D, line 48
1976–1978 Schedule D, line 27

Line 27—Trust's Share of Net Short-Term Gain

If there is a loss on any of the following lines, enter zero on line 27 for the applicable throwback year. Otherwise, enter the applicable amounts as follows:

Throwback year(s) Amount from line
1969–1970 Schedule D, line 10, column 2
1971–1978 Schedule D, line 14, column 2

Line 28—Trust's Share of Taxable Income Less Section 1202 Deduction

Enter the applicable amounts as follows:

Throwback year(s) Amount from line
1969 Schedule D, line 19
1970 Schedule D, line 18
1971 Schedule D, line 38
1972–1975 Schedule D, line 39
1976–1978 Schedule D, line 21

Part IV—Allocation to Beneficiary

Complete Part IV for each beneficiary. If the accumulation distribution is allocated to more than one beneficiary, attach an additional copy of Schedule J with Part IV completed for each additional beneficiary. Give each beneficiary a copy of his or her respective Part IV information. If more than 5 throwback years are involved, use another Schedule J, completing Parts II and III for each additional throwback year.

If the beneficiary is a nonresident alien individual or a foreign corporation, see section 667(e) about retaining the character of the amounts distributed to determine the amount of the U.S. withholding tax.

The beneficiary uses Form 4970 to figure the tax on the distribution. The beneficiary also uses Form 4970 for the section 667(b)(6) tax adjustment if an accumulation distribution is subject to estate or generation-skipping transfer tax. This is because the trustee may not be the estate or generation-skipping transfer tax return filer.

Schedule K-1 (Form 1041)— Beneficiary's Share of Income, Deductions, Credits, etc.

General Instructions

Use Schedule K-1 (Form 1041) to report the beneficiary's share of income, deductions, and credits from a trust or a decedent's estate.

Grantor type trusts do not use Schedule K-1 (Form 1041) to report the income, deductions, or credits of the grantor (or other person treated as owner). See Grantor Type Trusts, earlier.

Who Must File

The fiduciary (or one of the joint fiduciaries) must file Schedule K-1. A copy of each beneficiary's Schedule K-1 is attached to the Form 1041 filed with the IRS, and each beneficiary is given a copy of his or her respective Schedule K-1. One copy of each Schedule K-1 must be retained for the fiduciary's records.

Beneficiary's Identifying Number

As a payer of income, you are required to request and provide a proper identifying number for each recipient of income. Enter the beneficiary's number on the respective Schedule K-1 when you file Form 1041. Individuals and business recipients are responsible for giving you their TINs upon request. You may use Form W-9 to request the beneficiary's identifying number.

Penalty.   You may be charged a $100 penalty for each failure to provide a required TIN, unless reasonable cause is established for not providing it. Explain any reasonable cause in a signed affidavit and attach it to this return.

Substitute Forms

You do not need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule. The boxes must use the same numbers and titles and must be in the same order and format as on the comparable IRS Schedule K-1. The substitute schedule must include the OMB number and the 6-digit form ID code in the upper right-hand corner of the schedule.

You must provide each beneficiary with the Instructions for Beneficiary Filing Form 1040 or other prepared specific instructions for each item reported on the beneficiary's Schedule K-1.

Inclusion of Amounts in Beneficiaries' Income

Simple trust.   The beneficiary of a simple trust must include in his or her gross income the amount of the income required to be distributed currently, whether or not distributed, or if the income required to be distributed currently to all beneficiaries exceeds the DNI, his or her proportionate share of the DNI. The determination of whether trust income is required to be distributed currently depends on the terms of the trust instrument and applicable local law. See Regulations section 1.652(c)-4 for a comprehensive example.

Estates and complex trusts.   The beneficiary of a decedent's estate or complex trust must include in his or her gross income the sum of:
  1. The amount of the income required to be distributed currently, or if the income required to be distributed currently to all beneficiaries exceeds the DNI (figured without taking into account the charitable deduction), his or her proportionate share of the DNI (as so figured), and

  2. All other amounts properly paid, credited, or required to be distributed, or if the sum of the income required to be distributed currently and other amounts properly paid, credited, or required to be distributed to all beneficiaries exceeds the DNI, his or her proportionate share of the excess of DNI over the income required to be distributed currently.

  See Regulations section 1.662(c)-4 for a comprehensive example.

  For complex trusts that have more than one beneficiary, and if different beneficiaries have substantially separate and independent shares, their shares are treated as separate trusts for the sole purpose of determining the amount of DNI allocable to the respective beneficiaries. A similar rule applies to treat substantially separate and independent shares of different beneficiaries of an estate as separate estates. For examples of the application of the separate share rule, see the regulations under section 663(c).

Gifts and bequests.   Do not include in the beneficiary's income any gifts or bequests of a specific sum of money or of specific property under the terms of the governing instrument that are paid or credited in three installments or less.

  Amounts that can be paid or credited only from income of the estate or trust do not qualify as a gift or bequest of a specific sum of money.

Past years.   Do not include in the beneficiary's income any amounts deducted on Form 1041 for an earlier year that were credited or required to be distributed in that earlier year.

Character of income.   The beneficiary's income is considered to have the same proportion of each class of items entering into the computation of DNI that the total of each class has to the DNI (for example, half dividends and half interest if the income of the estate or trust is half dividends and half interest).

Allocation of deductions.

Generally, items of deduction that enter into the computation of DNI are allocated among the items of income to the extent such allocation is not inconsistent with the rules set out in section 469 and its regulations, relating to passive activity loss limitations, in the following order.

First, all deductions directly attributable to a specific class of income are deducted from that income. For example, rental expenses, to the extent allowable, are deducted from rental income.

Second, deductions that are not directly attributable to a specific class of income generally may be allocated to any class of income, as long as a reasonable portion is allocated to any tax-exempt income. Deductions considered not directly attributable to a specific class of income under this rule include fiduciary fees, safe deposit box rental charges, and state income and personal property taxes. The charitable deduction, however, must be ratably apportioned among each class of income included in DNI.

Finally, any excess deductions that are directly attributable to a class of income may be allocated to another class of income. However, in no case can excess deductions from a passive activity be allocated to income from a nonpassive activity, or to portfolio income earned by the estate or trust. Excess deductions attributable to tax-exempt income cannot offset any other class of income.

In no case can deductions be allocated to an item of income that is not included in the computation of DNI, or attributable to corpus.

You cannot show any negative amounts for any class of income shown in boxes 1 through 8 of Schedule K-1. However, for the final year of the estate or trust, certain deductions or losses can be passed through to the beneficiary(ies). See the instructions for box 11 for more information on these deductions and losses. Also, the beneficiary's share of depreciation and depletion is apportioned separately. These deductions may be allocated to the beneficiary(ies) in amounts greater than his or her income. See Depreciation, Depletion, and Amortization, earlier, and Rev. Rul. 74-530, 1974-2 C.B. 188.

Beneficiary's Tax Year

The beneficiary's income from the estate or trust must be included in the beneficiary's tax year during which the tax year of the estate or trust ends. See Pub. 559 for more information, including the effect of the death of a beneficiary during the tax year of the estate or trust.

General Reporting Information

If the return is for a fiscal year or a short tax year, fill in the tax year space at the top of each Schedule K-1. On each Schedule K-1, enter the information about the estate or trust and the beneficiary in Parts I and II (items A through H). In Part III, enter the beneficiary's share of each item of income, deduction, credit, and any other information the beneficiary needs to file his or her income tax return.

Codes.   In box 9 and boxes 11 through 14, identify each item by entering a code in the column to the left of the entry space for the dollar amount. These codes are identified in these instructions and on the back of the Schedule K-1.

Attached statements.   Enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each item for which you have attached a statement providing additional information. For those informational items that cannot be reported as a single dollar amount, enter the code and asterisk in the left-hand column and enter “STMT” in the entry space to the right to indicate that the information is provided on an attached statement. More than one attached statement can be placed on the same sheet of paper and should be identified in alphanumeric order by box number followed by the letter code (if any). For example: “Box 9, Code A—Depreciation” (followed by the information the beneficiary needs).

Too few entry spaces on Schedule K-1?   If the estate or trust has more coded items than the number of spaces in box 9 or boxes 11 through 14, do not enter a code or dollar amount in the last entry space of the box. In the last entry space, enter an asterisk in the left column and enter “STMT” in the entry space to the right. Report the additional items on an attached statement and provide the box number, code, description, and dollar amount or information for each additional item. For example: “Box 13, Code H—Biofuel Producer Credit, $500.00.

Specific Instructions

Part I. Information About the Estate or Trust

On each Schedule K-1, enter the name, address, and identifying number of the estate or trust. Also, enter the name and address of the fiduciary.

Item D

If the fiduciary of a trust or decedent's estate filed Form 1041-T, you must check this box and enter the date it was filed.

Item E

If this is the final year of the estate or trust, you must check this box.

Note.    If this is the final K-1 for the beneficiary, check the “Final K-1” box at the top of Schedule K-1.

Part II. Information About the Beneficiary

Complete a Schedule K-1 for each beneficiary. On each Schedule K-1, enter the beneficiary's name, address, and identifying number.

Item H

Check the foreign beneficiary box if the beneficiary is a nonresident alien individual, a foreign corporation, or a foreign estate or trust. Otherwise, check the domestic beneficiary box.

Part III. Beneficiary's Share of Current Year Income, Deductions, Credits, and Other Items

Box 1—Interest

Enter the beneficiary's share of the taxable interest income minus allocable deductions.

Box 2a—Total Ordinary Dividends

Enter the beneficiary's share of ordinary dividends minus allocable deductions.

Box 2b—Total Qualified Dividends

Enter the beneficiary's share of qualified dividends minus allocable deductions.

Box 3—Net Short-Term Capital Gain

Enter the beneficiary's share of the net short-term capital gain from Schedule D (Form 1041), line 17, column (1), minus allocable deductions. Do not enter a loss on line 3. If, for the final year of the estate or trust, there is a capital loss carryover, enter in box 11, code B, the beneficiary's share of short-term capital loss carryover. However, if the beneficiary is a corporation, enter in box 11, code B, the beneficiary's share of all short- and long-term capital loss carryovers as a single item. See section 642(h) and related regulations for more information.

Boxes 4a through 4c—Net Long-Term Capital Gain

Enter the beneficiary's share of the net long-term capital gain from Schedule D (Form 1041), lines 18a through 18c, column (1), minus allocable deductions.

Do not enter a loss in boxes 4a through 4c. If, for the final year of the estate or trust, there is a capital loss carryover, enter in box 11, code C, the beneficiary's share of the long-term capital loss carryover. (If the beneficiary is a corporation, see the instructions for box 3.) See section 642(h) and related regulations for more information.

Gains or losses from the complete or partial disposition of a rental, rental real estate, or trade or business activity that is a passive activity must be shown on an attachment to Schedule K-1.

Box 5—Other Portfolio and Nonbusiness Income

Enter the beneficiary's share of annuities, royalties, or any other income, minus allocable deductions (other than directly apportionable deductions), that is not subject to any passive activity loss limitation rules at the beneficiary level. Use boxes 6 through 8 to report income items subject to the passive activity rules at the beneficiary's level.

Boxes 6 through 8—Ordinary Business Income, Rental Real Estate, and Other Rental Income

Enter the beneficiary's share of trade or business, rental real estate, and other rental income, minus allocable deductions (other than directly apportionable deductions). To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach a separate schedule showing the beneficiary's share of income derived from each trade or business, rental real estate, and other rental activity.

Box 9—Directly Apportioned Deductions

The limitations on passive activity losses and credits under section 469 apply to estates and trusts. Estates and trusts that distribute income to beneficiaries are allowed to apportion depreciation, depletion, and amortization deductions to the beneficiaries. These deductions are referred to as “directly apportionable deductions.

Rules for treating a beneficiary's income and directly apportionable deductions from an estate or trust and other rules for applying the passive loss and credit limitations to beneficiaries of estates and trusts have not yet been issued.

Any directly apportionable deduction, such as depreciation, is treated by the beneficiary as having been incurred in the same activity as incurred by the estate or trust. However, the character of such deduction may be determined as if the beneficiary incurred the deduction directly.

To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach a separate schedule showing the beneficiary's share of directly apportionable deductions derived from each trade or business, rental real estate, and other rental activity.

Enter the beneficiary's share of directly apportioned deductions using codes A through C.

Depreciation (code A).   Enter the beneficiary's share of the depreciation deductions directly apportioned to each activity reported in boxes 5 through 8. See the instructions under Deductions, earlier, for a discussion of how the depreciation deduction is apportioned between the beneficiaries and the estate or trust. Report any AMT adjustment or tax preference item attributable to depreciation separately in box 12, using code G.

Note.

An estate or trust cannot make an election under section 179 to expense certain depreciable business assets.

Depletion (code B).   Enter the beneficiary's share of the depletion deduction under section 611 directly apportioned to each activity reported in boxes 5 through 8. See Depreciation, Depletion, and Amortization, earlier, for a discussion of how the depletion deduction is apportioned between the beneficiaries and the estate or trust. Report any tax preference item attributable to depletion separately in box 12, using code H.

Amortization (code C).   Itemize the beneficiary's share of the amortization deductions directly apportioned to each activity reported in boxes 5 through 8. Apportion the amortization deductions between the estate or trust and the beneficiaries in the same way that the depreciation and depletion deductions are divided. Report any AMT adjustment attributable to amortization separately in box 12, using code I.

Box 10—Estate Tax Deduction (Including Certain Generation-Skipping Transfer Taxes)

If the distribution deduction consists of any IRD, and the estate or trust was allowed a deduction under section 691(c) for the estate tax paid attributable to such income (see the line 19 instructions), then the beneficiary is allowed an estate tax deduction in proportion to his or her share of the distribution that consists of such income. For an example of the computation, see Regulations section 1.691(c)-2. Figure the computation on a separate sheet and attach it to the return.

Box 11, Code A—Excess Deductions on Termination

If this is the final return of the estate or trust, and there are excess deductions on termination (see the instructions for line 22), enter the beneficiary's share of the excess deductions in box 11, using code A. Figure the deductions on a separate sheet and attach it to the return.

Excess deductions on termination occur only during the last tax year of the trust or decedent's estate when the total deductions (excluding the charitable deduction and exemption) are greater than the gross income during that tax year.

Generally, a deduction based on an NOL carryover is not available to a beneficiary as an excess deduction. However, if the last tax year of the estate or trust is also the last year in which an NOL carryover may be taken (see section 172(b)), the NOL carryover is considered an excess deduction on the termination of the estate or trust to the extent it is not absorbed by the estate or trust during its final tax year. For more information, see Regulations section 1.642(h)-4 for a discussion of the allocation of the carryover among the beneficiaries.

Only the beneficiary of an estate or trust that succeeds to its property is allowed to deduct that entity's excess deductions on termination. A beneficiary who does not have enough income in that year to absorb the entire deduction may not carry the balance over to any succeeding year. An individual beneficiary must be able to itemize deductions in order to claim the excess deductions in determining taxable income.

Box 11, Codes B and C—Unused Capital Loss Carryover

Upon termination of the trust or decedent's estate, the beneficiary succeeding to the property is allowed as a deduction any unused capital loss carryover under section 1212. If the estate or trust incurs capital losses in the final year, use the Capital Loss Carryover Worksheet in the Instructions for Schedule D (Form 1041) to figure the amount of capital loss carryover to be allocated to the beneficiary.

Box 11, Codes D and E—NOL Carryover

Upon termination of a trust or decedent's estate, a beneficiary succeeding to its property is allowed to deduct any unused NOL (and any ATNOL) carryover for regular and AMT purposes if the carryover would be allowable to the estate or trust in a later tax year but for the termination. Enter in box 11, using codes D and E, the unused carryover amounts.

Box 12—AMT Items

Adjustment for minimum tax purposes (code A).   Enter the beneficiary's share of the adjustment for minimum tax purposes.

  To figure the adjustment, subtract the beneficiary's share of the income distribution deduction figured on Schedule B, line 15, from the beneficiary's share of the income distribution deduction on a minimum tax basis figured on Schedule I (Form 1041), line 44. The difference is the beneficiary's share of the adjustment for minimum tax purposes.

Note.

Schedule B, line 15 equals the sum of all Schedules K-1, boxes 1, 2a, 3, 4a, 5, 6, 7, and 8.

AMT adjustment attributable to qualified dividends, net short-term capital gains, or net long-term capital gains (codes B through D).   If any part of the amount reported in box 12, code A, is attributable to qualified dividends (code B), net short-term capital gain (code C), or net long-term capital gain (code D), enter that part using the applicable code.

AMT adjustment attributable to unrecaptured section 1250 gain or 28% rate gain (codes E and F).   Enter the beneficiary's distributive share of any AMT adjustments to the unrecaptured section 1250 gain (code E) or 28% rate gain (code F), whichever is applicable, in box 12.

Accelerated depreciation, depletion, and amortization (codes G through I).   Enter any adjustments or tax preference items attributable to depreciation, depletion, or amortization that were directly apportioned to the beneficiary. For property placed in service before 1987, report separately the accelerated depreciation of real and leased personal property.

Exclusion items (code J).   Enter the beneficiary's share of the adjustment for minimum tax purposes from Schedule K-1, box 12, code A, that is attributable to exclusion items (Schedule I (Form 1041), lines 2 through 6 and 8).

Box 13—Credits and Credit Recapture

Enter each beneficiary's share of the credits and credit recapture using the applicable codes. Listed below are the credits that can be allocated to the beneficiary(ies). Attach a statement if additional information must be provided to the beneficiary as explained below.

  • Credit for estimated taxes (code A)—Payment of estimated tax to be credited to the beneficiary (section 643(g)).

    See the instructions for line 24b before you make an entry to allocate any estimated tax payments to a beneficiary. If the fiduciary does not make a valid election, then the IRS will disallow the estimated tax payment that is reported on Schedule K-1 and claimed on the beneficiary's return.

  • Credit for backup withholding (code B).

    Income tax withheld on wages cannot be distributed to the beneficiary.

  • The low-income housing credit (code C). Attach a statement that shows the beneficiary's share of the amount, if any, entered on line 6 of Form 8586, Low-Income Housing Credit, with instructions to report that amount on Form 8586, line 4 or Form 3800, Part III, line 1d, if the beneficiary's only source for the credit is a pass-through entity. Also, show the beneficiary's share of the amount, if any, entered on line 13 of Form 8586 with instructions to report that amount on Form 8586, line 11 or Form 3800, Part III, line 4d, if the beneficiary's only source for the credit is a pass-through entity.

  • Rehabilitation credit and energy credit (code D). Attach a statement that shows the beneficiary's apportioned share of basis, expenditures, and other information that is necessary for the beneficiary to complete Form 3468, Investment Credit, for the rehabilitation credit and the energy credit. See the Instructions for Form 3468 for more information.

  • Other qualifying investment credit (code E). Attach a statement that shows the beneficiary's apportioned share of qualified investment and other information that is necessary for the beneficiary to complete Form 3468 for the qualifying advanced coal project credit, qualifying gasification project credit, and qualifying advanced energy project credit. See the Instructions for Form 3468 for more information.

  • Work opportunity credit (code F).

  • Credit for small employer health insurance premiums (code G).

  • Biofuel producer credit (code H). See the instructions for Form 6478, Biofuel Producer Credit, for more information.

  • Credit for increasing research activities (code I).

  • Renewable electricity, refined coal, and Indian coal production credit (code J). Attach a statement that shows the amount of the credit the beneficiary must report on line 9 and line 29 of Form 8835, in case the beneficiary is required to file that form in addition to Form 3800.

  • Empowerment zone and renewal community employment credit (code K).

  • Indian employment credit (code L).

  • Orphan drug credit (code M).

  • Credit for employer provided child care and facilities (code N).

  • Biodiesel and renewable diesel fuels credit (code O). If the credit includes the small agri-biodiesel credit, attach a statement that shows the beneficiary's share of the small agri-biodiesel credit, the number of gallons claimed for the small agri-biodiesel credit, and the estate's or trust's productive capacity for agri-biodiesel.

  • Nonconventional source fuel credit (code P).

  • Credit to holders of tax credit bonds (code Q).

  • Agricultural chemicals security credit (code R).

  • Energy efficient appliance credit (code S).

  • Credit for employer differential wage payments (code T).

  • Recapture of credits (code U). On an attached statement to Schedule K-1, provide any information the beneficiary will need to report recapture of credits.

Box 14—Other Information

Enter the dollar amounts and applicable codes for the items listed under Other Information.

Foreign taxes (code B).   Enter the beneficiary's allocable share of taxes paid or accrued to a foreign country. Attach a statement reporting the beneficiary's share of foreign tax (paid or accrued) and income by category including interest, dividends, rents and royalties, and other income. See Form 1116 and Pub. 514 for more information.

Domestic production activities information.   The estate or trust allocates QPAI (whether positive or negative) and Form W-2 wages based on the relative proportion of the estate's or trust's DNI that is distributed or required to be distributed to the beneficiary. If the estate or trust has no DNI for the tax year, QPAI and Form W-2 wages are allocated entirely to the estate or trust.

Qualified production activities income (code C).

Enter the beneficiary's share, if any, of the estate's or trust's QPAI from all activities. The QPAI will be less than zero if the cost of goods sold and deductions allocated and apportioned to domestic production gross receipts (DPGR) is more than the estate's or trust's DPGR. If any of the QPAI is oil-related QPAI, attach a statement that shows the amount of oil-related QPAI. See Form 8903, Domestic Production Activities Deduction, and its instructions for more details.

Form W-2 wages (code D).

Use code D to report the beneficiary's share, if any, of Form W-2 wages. Do not enter more than 9% of the beneficiary's share, if any, of the estate's or trust's QPAI. See Form 8903 and its instructions for more details.

Foreign trading gross receipts (code G).   Enter the beneficiary's share, if any, of foreign trading gross receipts. See Form 8873, Extraterritorial Income Exclusion, for more information.

Net investment income tax (code H).   Use code H to identify the amount of the beneficiary's adjustment for section 1411 net investment income or deductions. See the Instructions for Form 8960. An attachment may be provided with the K-1 informing the beneficiary of the detailed items to be reported on Form 1040. See Net Investment Income Tax, earlier, for more information on these amounts.

Other information (code I).   List on a separate sheet the tax information the beneficiary will need to complete his or her return that is not entered elsewhere on Schedule K-1.

  For example, if the estate or trust participates in a transaction that must be disclosed on Form 8886 (see earlier), both the estate or trust and its beneficiaries may be required to file Form 8886. The estate or trust must determine if any of its beneficiaries are required to disclose the transaction and provide those beneficiaries with information they will need to file Form 8886. This determination is based on the category(ies) under which a transaction qualified for disclosure. See the Instructions for Form 8886 for details.

  In addition, if the beneficiary is a “covered person” in connection with a foreign tax credit splitter arrangement under section 909, attach a statement that identifies the arrangement including the foreign taxes paid or accrued.


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