@bretsharon wrote:
Does this mean then, that a cash account is setup in principal's books holding cash for the Depreciation Reserve? Do you know of a treatise that addresses this? I have never found more than a few lines like you sent. So does this mean that DNI still includes all the depreciation and the beneficiary gets to deduct on their Sch K-1s
@bretsharon
EDIT: You are responding to a very old thread.
Depreciation deductions are typically allocated between the entity and the beneficiaries based on the income allocable to each.
See https://www.irs.gov/instructions/i1041#idm140366309841280
Depreciation.
For a decedent's estate, the depreciation deduction is apportioned between the estate and the heirs, legatees, and devisees on the basis of the estate's income allocable to each.
For a trust, the depreciation deduction is apportioned between the income beneficiaries and the trust on the basis of the trust income allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a depreciation reserve. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated among the income beneficiaries and the trust in the same manner as the trust's accounting income. See Regulations section 1.167(h)-1(b).
