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spykette613
New Member

Im doing a 1041 trust return and i report mortgage interest and taxes on schedule e then it seems like it is deducted again on 1041 like its deducted twice

 
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GeoffreyG
New Member

Im doing a 1041 trust return and i report mortgage interest and taxes on schedule e then it seems like it is deducted again on 1041 like its deducted twice

The reason that it seems like the mortgage interest (and property taxes too for that matter) appear as though they are being deducted twice is that they may actually be.  As to whether or not that is correct tax treatment, though, merits some further discussion.

Unless your Form 1041 entity is a Grantor Trust (in which case it is a purely flow-through entity and won't have any income or deductions of its own to either indicate or report), then you really should step back a moment and carefully look at the situation.

Is the underlying real property owned by you; or is it instead owned by the Trust (which is a separate taxable entity, unless it is a Grantor-type Trust).  If the property is owned by you, as a rental property, for example, then it would be correct to enter the income and deductions (mortgage + taxes) directly on your own Form 1040, Schedule E.  In this instance no deductions would be taken on Form 1041.

If the property is instead owned by the Trust, then the tax deductions claimed by the Trust, for mortgage and taxes, become reductions to the Trust's Distributable Net Income.  This will be reflected on your own Schedule E, as the Schedule K-1 data is generated by the Form 1041 Trust tax return, and then the income and deduction items subsequently input into your personal tax return.  In this case, you should not additionally enter the mortgage and taxes separately on your personal tax return, because that would indeed be improperly taking a deduction twice, on two different tax returns (your Form 1040 and the Form 1041 Trust entity).  All of the information you would need should be accurately captured on the Schedule K-1.

Does that answer make some sense to you?  The concept of Trusts as separate taxable entities, and the mechanics of flow-through items of income and deduction, can be difficult to understand sometimes.

Thank you for asking about this important topic.

View solution in original post

2 Replies
GeoffreyG
New Member

Im doing a 1041 trust return and i report mortgage interest and taxes on schedule e then it seems like it is deducted again on 1041 like its deducted twice

The reason that it seems like the mortgage interest (and property taxes too for that matter) appear as though they are being deducted twice is that they may actually be.  As to whether or not that is correct tax treatment, though, merits some further discussion.

Unless your Form 1041 entity is a Grantor Trust (in which case it is a purely flow-through entity and won't have any income or deductions of its own to either indicate or report), then you really should step back a moment and carefully look at the situation.

Is the underlying real property owned by you; or is it instead owned by the Trust (which is a separate taxable entity, unless it is a Grantor-type Trust).  If the property is owned by you, as a rental property, for example, then it would be correct to enter the income and deductions (mortgage + taxes) directly on your own Form 1040, Schedule E.  In this instance no deductions would be taken on Form 1041.

If the property is instead owned by the Trust, then the tax deductions claimed by the Trust, for mortgage and taxes, become reductions to the Trust's Distributable Net Income.  This will be reflected on your own Schedule E, as the Schedule K-1 data is generated by the Form 1041 Trust tax return, and then the income and deduction items subsequently input into your personal tax return.  In this case, you should not additionally enter the mortgage and taxes separately on your personal tax return, because that would indeed be improperly taking a deduction twice, on two different tax returns (your Form 1040 and the Form 1041 Trust entity).  All of the information you would need should be accurately captured on the Schedule K-1.

Does that answer make some sense to you?  The concept of Trusts as separate taxable entities, and the mechanics of flow-through items of income and deduction, can be difficult to understand sometimes.

Thank you for asking about this important topic.

View solution in original post

spykette613
New Member

Im doing a 1041 trust return and i report mortgage interest and taxes on schedule e then it seems like it is deducted again on 1041 like its deducted twice

yes the rental property is owned by trust so I listed mort int paid and real estate taxes on schd.e  and it appeared on 1041 lines 10 and 11by turbo tax is that correct thanks
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