Filing a form 1041 - tax rate is 28% with only capital gains income

[Don222]

Hello,

I am a fiduciary filing a 1041 for a trust.  The beneficiaries dividends and income are being reported on his 1040.

The only trust income are long term capital gains.  Turbo tax shows a tax due of $8,248 with a taxable income of $28,796.  Even with a NIIT of $502  that tax rate is 28.6%.  I can't determine why it is so much higher than the max capital gain tax of 20%.  Last year when I did the 1041 with the same income breakdown the rate was 21%.

Any help would be appreciated.

[DaveF1006]

 Yes, there looks like there is an issue because if these were long-term rates, the tax rate should have been 20% on $28.797.  Here are some possible reasons why you were taxed more.

1. Short-Term vs. Long-Term: Double-check that these are truly coded as "Long-Term" in the software. If TurboTax treats them as Short-Term, they are taxed at ordinary income rates, which hit 37% once you cross  $15,650. $28k of ordinary trust income would easily generate an $8k+ tax bill. 
2. Check each entry to ensure that they are all reported as long-term.
3. 28% Rate Gain Assets: If the trust sold "collectibles" (like coins, art, or certain stamps) or Section 1202 qualified small business stock, the IRS taxes those gains at a flat 28%, regardless of the trust brackets.
4. Alternative Minimum Tax (AMT): Check Schedule I. If the trust has certain adjustments or "tax preference items," it might be triggering the AMT.
5. State Taxes: Ensure the $8,248 isn't combining your Federal and State balances.

[M-MTax]

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@Don222 wrote:

The only trust income are long term capital gains.  Turbo tax shows a tax due of $8,248 with a taxable income of $28,796.  Even with a NIIT of $502  that tax rate is 28.6%. 

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If you want to check the exact calculation, enter Forms Mode and look at Part V of your Schedule D (Form 1041).

[Don222]

Thanks to all with a reply.

I believe my 1041 return was corrupted after I transferred the 2024 return  to the 2025 return.

I decided to create a new 1041 from scratch and although it took 40 minutes (I already had all the data neatly organized)  my tax liability went from owing $2396 to getting a $993 refund. My new tax rate is 17.3%.

The Turbo Business version is very poor compared to the standard 1040 versions IMHO.  I can't import from Schwab, etc.

I will ALWAYS manually create my 1041's in the future.