How to report distributions of principal from a Trust

Forum|Forum|3 years ago
January 21, 2023
4 replies
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Our mother had a revocable trust. It included several rental properties and a mutual fund. When she passed away in 2022 her revocable trust became an irrevocable trust. We (my sister and I both sole trustees and beneficiaries) sold all the properties and now want to distribute all assets and close out the trust. The trust did earn any income after becoming irrevocable. I am using the Business & Trusts version of TurboTax but cannot see where to report the principal distributions or even enter in the starting assets.

TurboTax Business Windows

Best answer by Anonymous_

A 1041 is not required to be filed for a trust unless the trust has taxable income for the tax year or gross income of $600 or more (regardless of whether or not that income is taxable).

You do not need to report distributions of corpus (principal) to the IRS.

Anonymous_Answer

Employee

A 1041 is not required to be filed for a trust unless the trust has taxable income for the tax year or gross income of $600 or more (regardless of whether or not that income is taxable).

You do not need to report distributions of corpus (principal) to the IRS.

Mike9241

sorry for your loss. if the trust had properties and mutual funds that were sold the trust needs to report these sales. each asset has a tax basis of the date of death fair market value + the tax basis of any additions such as improvements to the real property or mutual fund dividends. it is doubtful every asset was sold for exactly its tax basis. thus the trust will need to issue you each a k-1.

Anonymous_

Employee

@sunrise131 wrote:

The trust did earn any income after becoming irrevocable.

Except I just noticed that you stated it included rental properties.

Did the trust not receive any rent prior to the properties being sold?

Further, as pointed out by @Mike9241, there could be gain and recapture if the properties were being used as rentals after the trust became irrevocable but prior to the properties being sold.

Critter-3

This is one of those times where getting local professional assistance would be the wisest choice so things are done correctly.

DianeW777

Yes, the sales of the property must be reported. If they were sold once received by the beneficiaries then it will be reported on their returns. If they properties were sold while still in the trust then the trust return would report the sales and complete the K1s for each beneficiary. Likewise the mutual fund earnings after death and before distribution to the beneficiaries would be reported on the trust return.

As indicated by @Critter-3 you might consider professional advice for this year of ending the trust and the sales.

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Taxes886677

The trust tax return, form 1041, must report the sale of the rental properties even if they did not produce any income. Proceeds out of the trust are considered distributions. The trust tax return will issue a K-1 to each of the beneficiaries with their share of income, expenses if applicable.