Is a non-revocable trust obligated to depreciate rental property (1041 tax return) or can it opt to take no depreciation?

[Anonymous_ · Accepted solution]

It really makes no difference as there will be a recapture event (as unrecaptured Section 1250 gain) when the property is sold to an unrelated third party in a taxable transaction.

With respect to actual depreciation deductions for rental real estate, trusts are not treated any differently than individuals for federal income tax purposes.

[Carl]

Take the depreciation. When the property is sold or otherwise disposed up, the trust will be required to recapture *and pay tax" on all depreciation taken, or the depreciation that "should" have been taken. So weather you depreciate or not, you will be taxed on it.

[Mike9241]

if income is distributed to the beneficiaries who gets the deduction for the depreciation.

According to sections 167(d), 611(b)(3) and 642(e), depreciation and depletion deductions must be allocated between the trust and its beneficiaries based on the proportion of net accounting income minus distributions to net accounting income. If the trustee is required by the trust instrument or state law to allocate depreciation to the trust, the entire deduction (to the extent there is trust income) belongs to the trust. Note that in the case of an estate, the depreciation deduction is apportioned between the estate and beneficiaries regardless of the terms of the will.