I have a question about depreciation for a Trust. It is a California based trust in case that makes a difference. The trust has rental income, and depreciation. Some of the income, and some of the depreciation will be distributed to the beneficiaries.
The goal would be to retain some depreciation for the trust tax return, and distribute the rest equally between the beneficiaries using schedule K-1 (form 1041). Can the trust decide how much depreciation it keeps, and how much it passes to the beneficiaries? Or does the depreciation the trust keeps have to be proportional to the amount of income that the trust keeps? Or is there another rule for how this number is determined?
