Trust - Does the $100 Exemption Apply If No Capital Gains Occured

[Christopher00]

My Trust is eligible for a $100 exemption on Line 21 of Federal Form 1041.  Because I didn't have capital gains and all of the interest/dividend income is being distributed, this is causing line 23 to be negative $100.

For the federal taxes, this results in $0 tax due for the trust, which I expect.

The negative $100 is then transferred to the Colorado Form DR 105, Line 1.  The Colorado taxes due is also $0 for the trust.

I am curious if the exemption should transfer to the Colorado Form DR?  Or should my Federal taxable income be $0?

[Anonymous_]

---

@Christopher00 wrote:

I am curious if the exemption should transfer to the Colorado Form DR?  Or should my Federal taxable income be $0?

---

It should not. The federal exemption does not apply if the trust has no taxable income (typically as a result of all income being distributed to beneficiaries).

[Christopher00]

Thank you again.

In this case, would I manually adjust Line 21 to $0 since all income was distributed and the exemption does not apply?

[Anonymous_ · Accepted solution]

It really does not matter in terms of the federal return (1041), but you may have to make the adjustment so that the negative $100 does not transfer to your Colorado Form DR.