I’m hoping someone can clarify something about how net investment income (boxes 14E and 14H) is handled on a trust beneficiary K-1. I have a K-1 issued by a trust for income proportionately distributed. The trust fiduciary return (Form 1041) was prepared by me in Turbotax Business (I'm the trustee as well as one of the beneficiaries). But sometimes Turbotax does things with the numbers I give it that I don't understand.
In this case, the trust received 1099-R nonqualified annuity payments during the tax year that are fully taxable as ordinary income due to FIFO rules. This flows through to the beneficiary K-1s that Turbotax Business creates as “other portfolio and nonbusiness income” in box 5. However, the same amounts also appear as a negative in box 14H as an “adjustment for section 1411 net investment income or deductions.” I'm not sure what this means. Box 14E is net investment income, which I assume includes the box 5 amount. So what's the purpose of the amount in Box 14H in this context? How does it affect the beneficiary's return?
Thanks
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Not all portfolio income is subject to Net Investment Income Tax (NIIT). And that's what the entry in box 14H is telling you. Once you enter Schedule K-1 in TurboTax, it will show on line 7 of Form 8960 as a negative adjustment reducing the income subject to NIIT.
Take a look at Form 8960.
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