Trust K-1 Distributions

[Bozodclown]

In a trust's federal and state DNI K-1 worksheets the interest income and capital gains being distributed are shown in their own boxes but in the K-1 worksheet and each beneficiaries K-1, income and capital gains are combined in the long term capital gains box.  I don't seem to be able to edit the K-1 worksheet to show the separate types of distributions.  Why doesn't the K-1 worksheet show the different income types like the DNI worksheet?  How do I fix this?          

[Bozodclown]

I see that the interest income is subtracted from the deductions on the DNI worksheet.  The excess deductions are then subtracted from the capital gains number.  Is this right?  The deductions are applied to the ordinary income first and then the excess deductions applied to the capital gains?  I guess I should've studied trust taxation in school.    

[Anonymous_]

First of all, long-term capital gains and interest income are taxed differently on the federal level.

More importantly, capital gains are typically (by default) considered to be corpus and remain with the trust (i.e., are taxable for the trust and not distributed to the beneficiaries, at least not until the final return is filed or the trust directs otherwise).

[Bozodclown]

Right.  Interest income and capital gains are taxed differently.  That's why I'm concerned.  The K-1s show the distributions as long term capital gains but the reality is a small amount of that was ordinary income.  Turbotax applied the deductions to the interest income first in the DNI worksheet and then eliminated it from the distribution.  This IS the final trust return and so capital gains can be distributed to beneficiaries.  That's my understanding anyway.  

[Anonymous_]

Again, that is the default. You can most likely change it in Forms Mode but incorrectly.

[Bozodclown]

I tried changing it in Forms mode but I couldn't.  I'm researching the federal and state law on how a deduction is applied.  Turbotax applied the deduction to ordinary income first.  If I was writing the law, I would require that the deduction be applied proportionately.  If ordinary income is 10% of the total income then 10% of the deduction would be for ordinary income.  But that would make too much sense to be the law.  I'm going to send it in the way it is.  It won't change the the tax consequences much for anybody.  Thanks for your replies.

[Bozodclown]

FYI, I just read that tax deductions are applied to ordinary income first and then a tax bracket is determined for that.  Then, capital gains are added to the ordinary income amount to determine the tax bracket for the capital gains.  That was from a reliable source.  So, it looks like the Turbotax calculations were appropriate and correct.