Irrevocable Trust

[ednamc125]

I have only passive income of $1,000 on the irrevocable trust.  How are the taxes calculated on this?  Thank you

[Cynthiad66]

An irrevocable trust reports income on Form 1041, the IRS's trust and estate tax return. Even if a trust is a separate taxpayer, it may not have to pay taxes. If it makes distributions to a beneficiary, the trust will take a distribution deduction on its tax return and the beneficiary will receive IRS Schedule K-1.

As the trust or estate beneficiary, you must include the amounts reported on your K-1 on your personal income tax return. Your K-1 will report each type, or character, of income you receive in various boxes of the form. For example, box 2a shows the amount of your income from ordinary dividends, and box 2b has the amount of box 2a that is qualified dividends.

When you report these amounts on your 1040, you’re able to take advantage of the lower rates of tax that apply to qualified dividends for the amounts reported in box 2b. Some of the other income categories reported on the K-1 include interest earnings, long-term and short-term capital gains, ordinary business income, and rental real estate income.

Use this link for additional information:  What is a Schedule K-1 Form 1041: Estates and Trusts?

[ednamc125]

I'm trying to figure out how 2021 taxes would be calculated on $1,000 of interest income on the irrevocable trust.  I can't seem to find a tax table for that or maybe I need a worksheet?  The turbo tax premier edition I purchased does not do irrevocable trusts.  Thank you

[JulieS]

Tax on a Form 1041 is calculated on Schedule G. If you only have interest income, the amount goes on line 1a. You can use the chart below to calculate the tax. 

Don't forget, you may be able to deduct allowed expenses of the trust on lines 10-19 and you can take the trust exemption of $100 on line 21.

For more information, click here. 

[Tpearce1990]

My grandmother passed away and she placed her home in an irrevocable trust for Medicaid purposes. Because she had limited power of appointment, it was considered an incomplete gift to the trust. As well as she had a right to live in the home and receive income (such as rent) if she desired. With all that, according to IRS section 2036, the house moved back into the gross estate. In that case do I still need to report my shares? The estate is much less than the federal and NY state reporting threshold. I know if it was a revocable trust I would not have to report it. But if I do in this case which form do I use? 

[xmasbaby0]

@Tpearce1990   Before you get ahead of yourself with filing a tax return and entering anything about your grandmother's house, speak with an elder law attorney.   You say she was receiving coverage from Medicaid.   You need to know if the proceeds of the house are going to be subject to Medicaid Estate Recovery.   In many instances, Medicaid can seek compensation from the sale of the house to offset the expenses that were paid by Medicaid for her care.   You say the house was placed in a trust, so maybe that asset is protected-----but do not assume.  Get legal advice, which we cannot offer here.

[Tpearce1990]

@xmasbaby0 she actually never got around to using Medicaid. She unfortunately passed away. There’s no money owed or any estate recovery. And it’s been past 5 years since the trust was created over 10 years ago.  But from a tax standpoint, would a 1099 work? Or in this case since it moved back into the gross estate, do even need to report it since it was less than the $12,000,000 threshold and $6,000,000 threshold for state?