Can a trust beneficiary claim rental income in personal taxes while trustee is alive

[oobthinker]

Rental property & Beneficiary are in the same state and that state is different from trustee state. If a child is a beneficiary in the trust, can the beneficiary file the rental property income in their personal income tax for that state while the trustee is alive?

Trustees: parents in state1

Beneficiaries: children (>18 age) in state2

Rental Property: title is on Revocable trust & in state2

Can one of the children claim the rental property income in their individual income taxes while parents are alive and parents do not include that income in their taxes?

[Anonymous_ · Accepted solution]

States have various rules for trust residency.

Regardless, the trust has state source income from the rental in the state that the rental property is located. As a result, the trust (or beneficiary) will be subject to state tax (if the state in which the rental is located levies an income tax), regardless. In other words, the beneficiary will pay any state tax due if the net rental income is distributed to that beneficiary by the trust.

[oobthinker]

Trustees: parents

Beneficiaries: children (>18 age)

Can one of the children claim rental income in their individual income taxes while parents are alive and parents not include that income in their taxes?

[Anonymous_ · Accepted solution]

If the trust distributes net rental income to the children via a K-1 (1041).

Are the parents the primary beneficiaries?

[oobthinker]

Yes the parents are primary beneficiaries

[Anonymous_ · Accepted solution]

In that case, this appears to be a grantor trust and, as such, would be treated as disregarded for federal income tax purposes.

Was this trust established recently and what are the terms? 

Guidance from a local tax and/or legal professional (who can review the terms of the trust) is recommended.

[oobthinker]

Trust was established in 2018

[Anonymous_]

How have you been filing since 2018?

[Mike9241]

with a grantor trust, it is the grantors (your parents) who report all the income and deductions on their 1040. the 1041 merely states it's a grantor trust and adds a schedule to show the income and expenses the grantor will be reporting. in no case can income be allocated to a beneficiary. if your parents want to they can gift you the cash from the rental but they could be required to file a gift tax return