My mother's irrevocable trust sold its house in January of 2021 to pay for her continuing care. There is a substantial capital gain. The trust had zero taxes in 2020. Does the trust need to pay estimated taxes in 2021?
See https://www.irs.gov/instructions/i1041#idm140229122357664
Generally, an estate or trust must pay estimated income tax for 2021 if it expects to owe, after subtracting any withholding and credits, at least $1,000 in tax, and it expects the withholding and credits to be less than the smaller of:
90% of the tax shown on the 2021 tax return, or
100% of the tax shown on the 2020 tax return (110% of that amount if the estate's or trust's adjusted gross income on that return is more than $150,000, and less than 2/3 of gross income for 2020 or 2021 is from farming or fishing).
However, if a return was not filed for 2020 or that return didn't cover a full 12 months, item 2 doesn't apply.
Thank you tag team!
I read those instructions and I noticed exceptions at the bottom of that column:
Exceptions. Estimated tax payments aren’t required from:
1. An estate of a domestic decedent or a domestic trust that had a full 12-month 2020 tax year and had no tax liability for that year;
I was wondering if the underlined phrase applies to my situation.
@Philc56 wrote:I was wondering if the underlined phrase applies to my situation.
Yes, that would apply to your situation provided the trust's tax year was a full 12 months in 2020.