Yes, the expenses will come off of the rental income on the trust return. The net profit will be passed to the beneficiaries through the K1.
Line 5—Rents, Royalties, Partnerships, Other Estates and Trusts, etc. -
Use Schedule E (Form 1040), Supplemental Income and Loss, to report the estate's or trust's share of income or (losses) from rents, royalties, partnerships, S corporations, other estates and trusts, and REMICs. Also use Schedule E (Form 1040) to report farm rental income and expenses based on crops or livestock produced by a tenant. Enter the net profit or (loss) from Schedule E on line 5. See the Instructions for Schedule E (Form 1040) for reporting requirements.
- If the estate or trust received a Schedule K-1 from a partnership, an S corporation, or other flow-through entity, use the corresponding lines on Form 1041 to report the interest, dividends, capital gains, etc., from the flow-through entity.
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