There are various threads with conflicting information regarding the distribution of net corpus of cash and/or rental property. I know that the distribution of the cash and the transfer of the rental property to the sole beneficiary is not taxable to that beneficiary. I also know that the 1041 purpose is to report and calculate tax on trust income. A number of threads state that the corpus distribution is not entered anywhere on the 1041, even though it is the final return. However, the IRS instructions for Schedule B Line 10 state to report "mandatory and discretionary distributions of corpus, and distributions of property in kind." Note, this is a complex trust, initial and final return, with no accumulated corpus. Please discuss. Thank you
You can report the total distribution, but distributions of corpus do not appear on K-1s.
Capital gain is typically considered to be corpus, so a distribution (if the return is final or the trustee has the discretion to distribute capital gain) of such would appear on Line 10 and the K-1s.
Yes, the capital gains (loss actually) does track to my K-1. You are saying that I "may report" the distribution of corpus. That sounds optional. Must I report the distribution? If so, is there a Q & A on the step-by-step to do so?
Distributions of corpus do not need to be reported.
In fact, if you were only distributing corpus, and there was neither income nor gain, you would not even be required to file a 1041.
Even though there was no gain, I received two 1099s for the property sales from the escrow company. This was $1.2M in gross sale proceeds. My thought was that the IRS would be matching 1099s, thus expecting a 1041 return. Would that not be the case?
Yes, enter the sales transactions as reported on your 1099-S forms (the IRS will match those forms to your return).
However, you will have a selling price and a basis, the difference between the two representing capital gain which is what you will actually distribute assuming you have the discretion or it is mandatory by the terms of the trust.