I’m working with TurboTax business to complete and file a simple trust return (form 1041). The trust owns a rental property in a state that is different than where I reside. The trust has one beneficiary, an individual.
I noticed that after entering in all of the info in TT for the rental property, including the depreciation data, the Schedule E that is produced shows the depreciation being 0 and the actual depreciation for the property appears on the K-1 for the trust return, along with the rental income. I do understand at a certain level why this is computed in this manner (the income and the depreciation expense is “passed” to the K-1 for the beneficiary to use.
What is confusing me a little in this situation is two-fold:
a. When the trust return was prepared in a prior year by a CPA who works with trusts, the depreciation for the rental property was actually included on the Schedule E and not the K-1. This obviously lowered the P&L for the rental at the Schedule E level and came onto the 1041 as an adjusted number. This effectively generated a loss for the property. Was this a mistake to show the “cost” of the depreciation in this manner?
b. How and where the depreciation is recorded seems like an important issue in regards to my next point here. The state where the rental property is located requires that a local (state specific) 1041 be filed in that state. Because of how the federal 1041 is produced related to (a) above, it seems that the depreciation for the property wouldn’t get factored in as an expense since the state return uses the data from the Fed 1041.
Any advice here.
Thanks much!
You'll need to sign in or create an account to connect with an expert.
You might want to read through the article at the link below.
One relevant quote is, "depreciation is allocated based on the ratio of the distribution compared with the trust's or estate's trust accounting income". In short, depreciation typically follows income (i.e., if all of the rental income is allocated to the beneficiary, then all of the depreciation deduction is allocated to the beneficiary as well).
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
Mcb050032
Level 2
ZWu1
Returning Member
bcasali
Level 2
rmedrano
Level 1
taxhelp19
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.