K-1 1040 clarification "gross income sourced at beneficiary level"

[gordonlw]

Every year this stumps me!  Entering it is easy, it's the "gross income sourced at beneficiary level" section that gives me pause.  I have a few post bookmarked that refresh my memory and I figure it out.  This year my K-1 has a few additional boxes so I just want to make sure I'm entering it correctly.

The K-1 is a Trust form 1041

2a ordinary div $11,976

2b qualified div $10,159

12 Alternative Min Tax Adjustment Code A & J both $1646

14 Code A tax exempt interest $7822

      Code B foreign taxes $407

      Code I* STMT = section 199A reit div $67

So for gross income sourced at beneficiary level I add 2a ordinary div, 14a tax exempt interest, and 14i reit div for a total of $19,865?

gross income sourced at beneficiary level Foreign Source $5350

gross income sourced at beneficiary level US source is the difference at $14515?

Next screen I select Passive

Next screen "deductions allocated and apportioned at beneficiary level".  I have the following on my K-1, do I list those on this screen?

 
State Income Taxes $1,333
Fiduciary Fees $4,179
Atty, Acct, and Return Preparer Fees $350
Total Deductions $5,862

Rest of the screens blank exempt for 199A reit div question?

[DaveF1006 · Accepted solution]

Yes, based on the figures you provided, here is a breakdown of how to handle those entries.

1. Calculating Gross Income Sourced at Beneficiary Level

Your calculation for the "Total" is almost right, but there's an important detail with the Foreign Source income to keep in mind.

• Ordinary Dividends (2a): $11,976
• Tax-Exempt Interest (14A): $7,822
• Section 199A REIT Dividends (14I): $67
• Total Gross Income: $19,865

The "Foreign Source" amount: You mentioned $5,350 as your foreign source income. You should verify this number against the Statement/Attachment that came with your K-1 (usually associated with Box 14, Code B).

If your statement explicitly says that $5,350 of your dividends are foreign-sourced, then your math is correct.

US Source Calculation: $19,865 (Total) - $5,350 (Foreign) = $14,515.

2. Deductions Allocated/Apportioned at Beneficiary Level

This screen is asking for expenses that the trust incurred which reduce the income being passed to you.

Yes, you should list those deductions. These expenses (Fiduciary fees, Attorney fees, etc.) are "apportioned" against the gross income to find your net foreign taxable income.

Total Deductions to enter: $5,862 in Box 11. 

3. Reviewing the Other Boxes

Here is a quick check for the remaining items you mentioned:

Box 12 (AMT): Codes A and J represent your Alternative Minimum Tax adjustments. Ensure you enter these so your software can determine if you owe AMT (though most people don't hit the threshold these days).

Box 14, Code B ($407): This is the actual Foreign Tax Paid. This is the most important number for your credit. It makes sure you get a deduction (or a reduction) for taxes the trust has already paid to a foreign country.

Section 199A (REIT): When the software asks about the "Qualified Business Income" or "199A" screen, enter the $67. This gives you a 20% deduction on that specific slice of income. Listed in Box 14 with code I $67.

[gordonlw]

Thank you! 

The deductions are broken down as:

non qualified foreign dividends $1463

non qualified other dividends $4399

total $5862

Are these entered as "interest expense" or "other deductions"?

Thanks again.

[DaveF1006]

They are entered as "other deductions" in Box 11.