Does Principal from an Irrevocable Trust Distributed to a Beneficiary have to reported since it’s not income?

[trust812]

Does Principal from an Irrevocable Trust distributed to a Beneficiary have to reported on forms such as 1040 by the Beneficiary, and 1041 and a K-1 by the Trustee, since it’s not income? If not, would I as the Trustee simply send the Beneficiary a check from the Trust Checking account and that’s it? Thanks!

[Mike9241]

if it's a complex trust. the principal distribution is reported on schedule B line 10 of the 1041.

from 1041 instructions

Line 10 is to be completed only by a complex trust. These distributions consist of any other
amounts paid, credited, or required to be distributed and are referred to as “second-tier distributions.” Such amounts include .... mandatory and discretionary distributions of corpus (principal), .............

[trust812]

Thanks for your quick answer! Unfortunately it’s not as simple as I thought and it’s probably a Complex Trust and not a Simple one. No pun was intended 😉

[trust812]

Schedule B looks simple and makes sense though. It looks like if the Trust had no income after filling out Schedule B Line 15 would be 0 and be transferred to line 18 of page 1 of Form 1041. It’s seems like if there was no income to a Beneficiary I won’t have to issue a K-1 to them though.

[trust812]

@tagteam 

“That is correct; it is not mandatory in that instance.”

So if the Trust sold the home and there was no gain on the home, let’s say for example that $100,000 from the sale was distributed to a Beneficiary, would it only be accounted for on Schedule B of the Trust Form 1041 and since there was no gain (income) on the sale, a K-1 wouldn’t have to be issued and the Beneficiary wouldn’t have to declare that he or she received $100,000 anywhere on their Form 1040 Tax return? Is that correct?

[trust812]

@tagteam “If that is $100,000 worth of corpus and no income or gain was distributed, then a 1041 would not even be required to be filed.”

OK. So if a 1041 Form wasn’t required to be filed because $100,000 was corpus and no income or gain was distributed thus a K-1 wasn’t given to the Beneficiary, even though the $100,000 corpus was distributed to the Beneficiary he or she wouldn’t have to declare it on his or her Form 1040. Is that correct? Thanks!