Trust distribution - all rental income/depreciation to one K-1/beneficiary vs split to all beneficiaries

[jeffmala]

In 2019, Trust income from a Rental Property was distributed only to one of multiple beneficiaries (as directed by the Trust).  Other income was distributed equally to each beneficiary.

For generating K-1s for distributing trust income to beneficiaries, TurboTax Business offers two formulas:

1 - Percentages (e.g. 50% to each beneficiary)

2 - Distribution amounts (e.g. $1,000 to one beneficiary and $3,000 to another)

However, TurboTax divides the rental income/depreciation between all beneficiaries per the % or $ amounts selected.

Questions:

- Is there a way to force all rental income/depreciation to one K-1 using TurboTax?

- Do I need to generate K-1s by hand?  If so, can I still file electronically (which may be required by my state).

- Is there another tax software product that would support this?

Any info will help.

[Anonymous_ · Accepted solution]

Depreciation typically follows rental income and is allocated between the trust and beneficiaries. If the trust and beneficiaries split the income equally, then the depreciation deduction is also split equally.

However, if only one beneficiary is designated to receive all of the rental income, then that beneficiary should also receive the entire depreciation deduction. This scenario can be accomplished in TurboTax Business by manually preparing the K-1s in Forms Mode.

In order to avoid overrides on your K-1s, you have to clear any percentages entered in the program (e.g., 50% to each beneficiary) and also amounts distributed to beneficiaries. You will then be able to enter dollar figures (and codes) directly on your K-1s.

You will be left with an error on the Beneficiary List (List of Beneficiaries) because the total allocation will not be 100% (it will actually equal zero because it will be blank). Since that list is only for your records, you can override the figure at the bottom to equal 100% and the return should then pass the error check and be ready for e-filing.

[jeffmala]

This works and allows me to distribute to the K-1s as I need.  

I will find out if the electronic filing is accepted when I get to that point.

Thanks much!

[sprat22]

In my case I also must use 3rd method with direct entry on K-1 and 100% on beneficiary list as required. In my case though it doesn't sum beneficiary amounts correctly. What is your trick to get it to sum correctly? Phone help is calling the doing of the sum tax advice and won't give it? I will have to do 1041 all by hand and return for refund if it doesn't sum correctly?

[jeffmala]

I am probably not the best person to answer this, but I can tell you what I see for my return:

- The totals on the 1041 come from the Step-by-Step entry of 1099s and other income. 

- For multiple beneficiaries, totals will be divided by TurboTax onto multiple K-1s, but can be modified as described above.

- To enable modifications to the K-1s, I removed the % in the "Beneficiary's Allocation Smart Worksheet" that appears on the K-1 form.

- I manually ensure that the sum of all K-1s still equals the original total on the 1041 for each line.  

Modifications to the K-1s do not change the sum on the 1041 automatically, as these are set by the income that has been entered previously.

Hope this helps.