Trust depreciation/amortization

Forum|Forum|1 year ago
March 2, 2025
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I understand depreciation in a trust is more of a cash concept.

Im trying to figure out an example of a difference where the affect is different if the trust keeps the depreciation or it is directly allocated to the beneficiary. How would the taxable income distributed be different and how does this affect the taxes of a trust. This would affect the trust if they were accumulating? Also, if the trust doesn’t allocate the depreciation to the beneficiary doesn’t that decrease the distribution deduction for the trust?

if the trust keeps the depreciation and makes a reserve, the reserve then is distributed to the beneficiaries as principal on sale of the property?

If the trust kept the depreciation, who should be responsible for the recapture when sold?

M-MTax

Level 15

You should read the following article all the way through:

https://www.journalofaccountancy.com/issues/2010/oct/20102933.html

Also, note that depreciation is essentially an accounting concept; it is a non-cash, phantom, expense.

Farmgirl123Author

Level 5

Thank you!
I have read this article. But I also understand in a trust that depreciation is a little different and that if a trust can keep a reserve, cash on the books is moved to principal for that reserve. There is an actual reserve suppose to be kept. A reserve than owed to the beneficiaries if not used.
Im still curious for the depreciation kept by the trust should the trust not pay the recapture and not the beneficiary for the portion not directly apportioned to the beneficiary?

just trying to figure this all out. I would assume that when the beneficiary got the direct allocation for their portion, they would pay the recapture. It seems to me of the trust kept it, they would pay the recapture?

I don’t see this addressed in any papers I read on the subject.

M-MTax

Level 15

So I’m curious.
The directly apportioned deductions are not reported on the tax returns for the trust. Just on the k-1?
not even on the 4562? You just keep records in case of audit? Confused. So the schedule would be set at beginning of an estate or trust and you would have to keep scrupulous records because not reported anywhere else but on the k-1?

Thank you!!

The 4562 would be for the first year of depreciation, anyway, so that is irrelevant.

There should be a depreciation schedule somewhere in the program or at least the current and accumulated depreciation on one of the forms you save for your files.