Instructions for Form 1041 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Copy the exact name of the estate or trust from the Form SS-4, Application for Employer Identification Number, that you used
to apply for the EIN.
If the name of the trust was changed during the tax year for which you are filing, enter the trust's new name and check the
Change in trust's
name box in item F.
If a grantor type trust (discussed below), write the name, identification number, and address of the grantor(s) or other owner(s)
in parentheses
after the name of the trust.
Name and Title of Fiduciary
Enter the name and title of the fiduciary. If the name entered is different than the name on the prior year's return, see
Change in
Fiduciary's Name and Change in Fiduciary on page 14.
Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street
address and the
fiduciary has a P.O. box, show the box number instead.
If you want a third party (such as an accountant or an attorney) to receive mail for the estate or trust, enter on the street
address line
“C/O” followed by the third party's name and street address or P.O. box.
If the estate or trust has had a change of address (including a change to an “in care of” name and address) and did not file Form 8822, Change
of Address, check the Change in fiduciary's address box in item F.
If the estate or trust has a change of mailing address (including a new "in care of" name and address) after filing its return,
file Form 8822 to
notify the IRS of the change.
Check the appropriate box that describes the entity for which you are filing the return.
If only a portion of a trust is a grantor type trust or if only a portion of an electing small business trust is the S portion,
then more then one
box can be checked.
There are special filing requirements for grantor type trusts, pooled income funds, electing small business trusts, and bankruptcy
estates. See
Special Filing Instructions for Grantor Type Trusts, Pooled Income Funds, and Electing Small Business Trusts on page 5, or
Of Special
Interest to Bankruptcy Trustees and Debtors-in-Possession on page 11.
An estate of a deceased person is a taxable entity separate from the decedent. It generally continues to exist until the final
distribution of the
assets of the estate is made to the heirs and other beneficiaries. The income earned from the property of the estate during
the period of
administration or settlement must be accounted for and reported by the estate.
A trust may qualify as a simple trust if:
-
The trust instrument requires that all income must be distributed currently;
-
The trust instrument does not provide that any amounts are to be paid, permanently set aside, or used for charitable purposes;
and
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The trust does not distribute amounts allocated to the corpus of the trust.
A complex trust is any trust that does not qualify as a simple trust as explained above.
Qualified Disability Trust
A qualified disability trust is any nongrantor trust:
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Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who
is disabled,
and
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All the beneficiaries of which are determined by the Commissioner of Social Security to have been disabled for some part of
the tax year
within the meaning of 42 U.S.C. 1382c(a)(3).
A trust will not fail to meet 2 above just because the trust's corpus may revert to a person who is not disabled after the
trust ceases to have any
disabled beneficiaries.
The S portion of an electing small business trust (ESBT) is the portion of the trust that consists of S corporation stock
and that is not treated
as owned by the grantor or another person. See page 7 of the instructions for more information about an ESBT.
A grantor type trust is a legal trust under applicable state law that is not recognized as a separate taxable entity for income
tax purposes
because the grantor or other substantial owners have not relinquished complete dominion and control over the trust.
Generally, for transfers made in trust after March 1, 1986, the grantor is treated as the owner of any portion of a trust
in which he or she has a
reversionary interest in either the income or corpus therefrom, if, as of the inception of that portion of the trust, the
value of the reversionary
interest is more than 5% of the value of that portion. Also, the grantor is treated as holding any power or interest that
was held by either the
grantor's spouse at the time that the power or interest was created or who became the grantor's spouse after the creation
of that power or interest.
Mortgage pools.
The trustee of a mortgage pool, such as the Federal National Mortgage Association, collects principal and interest
payments on each mortgage and
makes distributions to the certificate holders. Each pool is considered a grantor type trust, and each certificate holder
is treated as the owner of
an undivided interest in the entire trust under the grantor trust rules. Certificate holders must report their proportionate
share of the mortgage
interest and other items of income on their individual tax returns.
Pre-need funeral trusts.
The purchasers of pre-need funeral services are the grantors and the owners of pre-need funeral trusts established
under state laws. See Rev. Rul.
87-127, 1987-2 C.B. 156. However, the trustees of pre-need funeral trusts can elect to file the return and pay the tax for
qualified funeral trusts.
For more information, see Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts.
Nonqualified deferred compensation plans.
Taxpayers may adopt and maintain grantor trusts in connection with nonqualified deferred compensation plans (sometimes
referred to as “ rabbi
trusts”). Rev. Proc. 92-64, 1992-2 C.B. 422, provides a “ model grantor trust” for use in rabbi trust arrangements. The procedure also provides
guidance for requesting rulings on the plans that use these trusts.
A chapter 7 or 11 bankruptcy estate is a separate and distinct taxable entity from the individual debtor for federal income
tax purposes. See
Of Special Interest to Bankruptcy Trustees and Debtors-in-Possession on page 11.
For more information, see section 1398 and Pub. 908, Bankruptcy Tax Guide.
A pooled income fund is a split-interest trust with a remainder interest for a public charity and a life income interest retained
by the donor or
for another person. The property is held in a pool with other pooled income fund property and does not include any tax-exempt
securities. The income
for a retained life interest is figured using the yearly rate of return earned by the trust. See section 642(c) and the related
regulations for more
information.
B. Number of Schedules K-1 Attached
Every trust or decedent's estate claiming an income distribution deduction on page 1, line 18, must enter the number of Schedules
K-1 (Form 1041)
that are attached to Form 1041.
C. Employer Identification Number
Every estate or trust that is required to file Form 1041 must have an EIN. An EIN may be applied for:
-
Online by clicking on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application
information is validated.
-
By telephone at 1-800-829-4933 from 7:00 a.m. to 10:00 p.m. in the fiduciary's local time zone. Assistance provided to callers
from Alaska
and Hawaii will be based on the hours of operation in the Pacific time zone.
-
By mailing or faxing Form SS-4, Application for Employer Identification Number.
If the estate or trust has not received its EIN by the time the return is due, write “Applied for” in the space for the EIN. For more
details, see Pub. 583, Starting a Business and Keeping Records.
If you are filing a return for a mortgage pool,
such as one created under the mortgage-backed security programs administered by the Federal
National Mortgage Association (“Fannie Mae”) or the Government National Mortgage Association (“Ginnie Mae”), the EIN stays with the pool if
that pool is traded from one financial institution to another.
Enter the date the trust was created, or, if a decedent's estate, the date of the decedent's death.
E. Nonexempt Charitable and Split-Interest Trusts
Check this box if the trust is a nonexempt charitable trust within the meaning of section 4947(a)(1).
A nonexempt charitable trust is a trust:
-
That is not exempt from tax under section 501(a);
-
In which all of the unexpired interests are devoted to one or more charitable purposes described in section 170(c)(2)(B);
and
-
For which a deduction was allowed under section 170 (for individual taxpayers) or similar Code section for personal holding
companies,
foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes).
Nonexempt charitable trust treated as a private foundation.
If a nonexempt charitable trust is treated as though it were a private foundation under section 509, then the fiduciary
must file Form 990-PF,
Return of Private Foundation, in addition to Form 1041.
If a nonexempt charitable trust is treated as though it were a private foundation, and it has no taxable income under
Subtitle A, it may file Form
990-PF instead of Form 1041 to meet its section 6012 filing requirement. But, be sure to answer Statement 13, on Part VII-A
of Form 990-PF.
Excise taxes.
If a nonexempt charitable trust is treated as a private foundation, then it is subject to the same excise taxes under
chapters 41 and 42 that a
private foundation is subject to. If the nonexempt charitable trust is liable for any of these taxes (except the section 4940
tax), then it reports
these taxes on Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal
Revenue Code. Taxes
paid by the trust on Form 4720 or on Form 990-PF (the section 4940 tax) cannot be taken as a deduction on Form 1041.
Check this box if the nonexempt charitable trust (section 4947(a)(1)) is not treated as a private foundation under section
509. For more
information, see Regulations section 53.4947-1.
Other returns that must be filed.
If a nonexempt charitable trust is not treated as though it were a private foundation, the fiduciary must file, in
addition to Form 1041, Form 990
(or Form 990-EZ), Return of Organization Exempt From Income Tax, and Schedule A (Form 990 or 990-EZ), Organization Exempt
Under Section 501(c)(3), if
the trust's gross receipts are normally more than $25,000.
If a nonexempt charitable trust is not treated as though it were a private foundation, and it has no taxable income
under Subtitle A, it can file
either Form 990 or Form 990-EZ instead of Form 1041 to meet its section 6012 filing requirement.
Check this box if the trust is a split-interest trust described in section 4947(a)(2).
A split-interest trust is a trust that:
-
Is not exempt from tax under section 501(a);
-
Has some unexpired interests that are devoted to purposes other than religious, charitable, or similar purposes described
in section
170(c)(2)(B); and
-
Has amounts transferred in trust after May 26, 1969, for which a deduction was allowed under section 170 (for individual taxpayers)
or
similar Code section for personal holding companies, foreign personal holding companies, or estates or trusts (including a
deduction for estate or
gift tax purposes).
Other returns that must be filed.
The fiduciary of a split-interest trust must file Form 5227 (for amounts transferred in trust after May 26, 1969);
and Form 1041-A if the trust's
governing instrument does not require that all of the trust's income be distributed currently.
If a split-interest trust has any unrelated business taxable income, however, it must file Form 1041 to report all
of its income and to pay any tax
due.
F. Initial Return, Amended Return, etc.
If you are filing an amended Form 1041:
-
Check the “Amended return” box,
-
Complete the entire return,
-
Correct the appropriate lines with the new information, and
-
Refigure the estate's or trust's tax liability.
If the total tax on line 23 is larger on the amended return than on the original return, you generally should pay the difference
with the amended
return. However, you should adjust this amount if there is any increase or decrease in the total payments shown on line 25.
Attach a sheet that explains the reason for the amendments and identifies the lines and amounts being changed on the amended
return.
Amended Schedule K-1 (Form 1041).
If the amended return results in a change to income, or a change in distribution of any income or other information
provided to a beneficiary, an
amended Schedule K-1 (Form 1041) must also be filed with the amended Form 1041 and given to each beneficiary. Check the “ Amended K-1” box at the
top of the amended Schedule K-1.
Check this box if this is a final return because the estate or trust has terminated. Also, check the “Final K-1” box at the top of Schedule
K-1.
If, on the final return, there are excess deductions, an unused capital loss carryover, or a net operating loss carryover,
see the instructions for
Schedule K-1, box 11, on page 43.
Grantor type trusts that are required to follow the 2007 reporting rules for widely held fixed investment trusts (WHFITs)
under Regulations section
1.671-5 (if the WHFIT rules apply to the entire trust) must check the final return box.
If the name of the trust has changed from the name shown on the prior year's return (or Form SS-4 if this is the first return
being filed), be sure
to check this box.
If a different fiduciary enters his or her name on the line for Name and title of fiduciary than was shown on the prior year's return
(or Form SS-4 if this is the first return being filed) and you did not file a Form 8822, be sure to check this box. If there
is a change in the
fiduciary whose address is used as the mailing address for the estate or trust after the return is filed, use Form 8822 to
notify the IRS.
Change in Fiduciary's Name
If the fiduciary changed his or her name from the name that he or she entered on the prior year's return (or Form SS-4 if
this is the first return
being filed), be sure to check this box.
Change in Fiduciary's Address
If the same fiduciary who filed the prior year's return (or Form SS-4 if this is the first return being filed) files the current
year's return and
changed the address on the return (including a change to an "in care of" name and address) and did not report the change on
Form 8822, check this box.
If the address shown on Form 1041 changes after you file the form (including a change to an "in care of" name and address)
file Form 8822 to
notify the IRS of the change.
G. Pooled Mortgage Account
If you bought a pooled mortgage account during the year and still have that pool at the end of the tax year, check the “Bought” box and enter
the date of purchase. If you sold a pooled mortgage account that was purchased during this, or a previous, tax year, check
the “Sold” box and
enter the date of sale. If you neither bought nor sold a pooled mortgage account, skip this item.
Special Rule for Blind Trust
If you are reporting income from a qualified blind trust (under the Ethics in Government Act of 1978), do not identify the
payer of any income to
the trust but complete the rest of the return as provided in the instructions. Also write “Blind Trust” at the top of page 1.
Extraterritorial Income Exclusion
The estate or trust may exclude part of its extraterritorial income from gross income. For details and to figure the amount
of the exclusion, see
Form 8873, Extraterritorial Income Exclusion, and its separate instructions. The estate or trust must report the extraterritorial
income exclusion on
line 15a of Form 1041, page 1.
Although the extraterritorial income exclusion is entered on line 15a, it is an exclusion from income and should be treated
as tax-exempt income
when completing other parts of the return.
Report the estate's or trust's share of all taxable interest income that was received during the tax year. Examples of taxable
interest include
interest from:
-
Accounts (including certificates of deposit and money market accounts) with banks, credit unions, and thrift institutions;
-
Notes, loans, and mortgages;
-
U.S. Treasury bills, notes, and bonds;
-
U.S. savings bonds;
-
Original issue discount; and
-
Income received as a regular interest holder of a real estate mortgage investment conduit (REMIC).
For taxable bonds acquired after 1987, amortizable bond premium is treated as an offset to the interest income instead of
as a separate interest
deduction. See Pub. 550.
For the year of the decedent's death, Forms 1099-INT issued in the decedent's name may include interest income earned after
the date of death that
should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return,
report on line 1 of
Schedule B (Form 1040) or Schedule 1 (Form 1040A) the total interest shown on Form 1099-INT. Under the last entry on line
1, subtotal all the interest
reported on line 1. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the
part of the interest reported on Form 1041 and subtract it from the subtotal.
Line 2a—Total Ordinary Dividends
Report the estate's or trust's share of all ordinary dividends received during the tax year.
For the year of the decedent's death, Forms 1099-DIV issued in the decedent's name may include dividends earned after the
date of death that should
be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report
on line 5 of Schedule B
(Form 1040) or Schedule 1 (Form 1040A) the ordinary dividends shown on Form 1099-DIV. Under the last entry on line 5, subtotal
all the dividends
reported on line 5. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the
part of the ordinary dividends reported on Form 1041 and subtract it from the subtotal.
Report capital gain distributions on Schedule D (Form 1041), line 9.
Line 2b—Qualified Dividends
Enter the beneficiary's allocable share of qualified dividends on line 2b(1) and enter the estate's or trust's allocable share
on line 2b(2).
If the estate or trust received qualified dividends that were derived from income in respect of a decedent, you must reduce
the amount on line
2b(2) by the portion of the estate tax deduction claimed on Form 1041, page 1, line 19, that is attributable to those qualified
dividends. Do not
reduce the amounts on line 2b by any other allocable expenses.
Note.
The beneficiary's share (as figured above) may differ from the amount entered on line 2b of Schedule K-1 (Form 1041).
Qualified dividends.
Qualified dividends are eligible for a lower tax rate than other ordinary income. Generally, these dividends are reported
to the estate or trust in
box 1b of Form(s) 1099-DIV. See Pub. 550 for the definition of qualified dividends if the estate or trust received dividends
not reported on Form
1099-DIV.
Exception.
Some dividends may be reported to the estate or trust as qualified dividends in box 1b of Form 1099-DIV but are not
qualified dividends. These
include:
-
Dividends received on any share of stock that the estate or trust held for less than 61 days during the 121-day period that
began 60 days
before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser
of a stock is not
entitled to receive the next dividend payment. When counting the number of days the stock was held, include the day the estate
or trust disposed of
the stock but not the day it acquired the stock. However, you cannot count certain days during which the estate's or trust's
risk of loss was
diminished. See Pub. 550 for more details.
-
Dividends attributable to periods totaling more than 366 days that the estate or trust received on any share of preferred
stock held for
less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days
the stock was held,
include the day the estate or trust disposed of the stock but not the day it acquired the stock. However, you cannot count
certain days during which
the estate's or trust's risk of loss was diminished. See Pub. 550 for more details. Preferred dividends attributable to periods
totaling less than 367
days are subject to the 61-day holding period rule above.
-
Dividends on any share of stock to the extent that the estate or trust is under an obligation (including a short sale) to
make related
payments with respect to positions in substantially similar or related property.
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Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.
If you have an entry on line 2b(2), be sure you use Schedule D (Form 1041), the Schedule D Tax Worksheet, or the Qualified
Dividends Tax Worksheet,
whichever applies, to figure the estate's or trust's tax. Figuring the estate's or trust's tax liability in this manner will
usually result in a lower
tax.
Line 3—Business Income or (Loss)
If the estate operated a business, report the income and expenses on Schedule C (Form 1040), Profit or Loss From Business
(or Schedule C-EZ (Form
1040), Net Profit From Business). Enter the net profit or (loss) from Schedule C (or Schedule C-EZ) on line 3.
Line 4—Capital Gain or (Loss)
Enter the gain from Schedule D (Form 1041), Part III, line 15, column (3); or the loss from Part IV, line 16.
Do not substitute Schedule D (Form 1040) for Schedule D (Form 1041).
Line 5—Rents, Royalties, Partnerships, Other Estates and Trusts, etc.
Use Schedule E (Form 1040), Supplemental Income and Loss, to report the estate's or trust's share of income or (losses) from
rents, royalties,
partnerships, S corporations, other estates and trusts, and REMICs. Enter the net profit or (loss) from Schedule E on line
5. See the instructions for
Schedule E (Form 1040) for reporting requirements.
If the estate or trust received a Schedule K-1 from a partnership, S corporation, or other flow-through entity, use the corresponding
lines on Form
1041 to report the interest, dividends, capital gains, etc., from the flow-through entity.
Line 6—Farm Income or (Loss)
If the estate or trust operated a farm, use Schedule F (Form 1040), Profit or Loss From Farming, to report farm income and
expenses. Enter the net
profit or (loss) from Schedule F on line 6.
Line 7—Ordinary Gain or (Loss)
Enter from line 17, Form 4797, Sales of Business Property, the ordinary gain or loss from the sale or exchange of property
other than capital
assets and also from involuntary conversions (other than casualty or theft).
Enter other items of income not included on lines 1, 2a, and 3 through 7. List the type and amount on an attached schedule
if the estate or trust
has more than one item.
Items to be reported on line 8 include:
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Unpaid compensation received by the decedent's estate that is income in respect of a decedent, and
-
Any part of a total distribution shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing
Plans, IRAs,
Insurance Contracts, etc., that is treated as ordinary income. For more information, see the separate instructions for Form
4972, Tax on Lump-Sum
Distributions.
Depreciation, Depletion, and Amortization
A trust or decedent's estate is allowed a deduction for depreciation, depletion, and amortization only to the extent the deductions
are not
apportioned to the beneficiaries. An estate or trust is not allowed to make an election under section 179 to expense certain
tangible property.
The estate's or trust's share of depreciation, depletion, and amortization should be reported on the appropriate lines of
Schedule C (or C-EZ), E,
or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041. If the deduction is not related
to a specific business
or activity, then report it on line 15a.
Depreciation.
For a decedent's estate, the depreciation deduction is apportioned between the estate and the heirs, legatees, and
devisees on the basis of the
estate's income allocable to each.
For a trust, the depreciation deduction is apportioned between the income beneficiaries and the trust on the basis
of the trust income allocable to
each, unless the governing instrument (or local law) requires or permits the trustee to maintain a depreciation reserve. If
the trustee is required to
maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated
among the beneficiaries
and the trust in the same manner as the trust's accounting income. See Regulations section 1.167(h)-1(b).
Depletion.
For mineral or timber property held by a decedent's estate, the depletion deduction is apportioned between the estate
and the heirs, legatees, and
devisees on the basis of the estate's income from such property allocable to each.
For mineral or timber property held in trust, the depletion deduction is apportioned between the income beneficiaries
and the trust based on the
trust income from such property allocable to each, unless the governing instrument (or local law) requires or permits the
trustee to maintain a
reserve for depletion. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up
to the amount of the
reserve. Any excess is allocated among the beneficiaries and the trust in the same manner as the trust's accounting income.
See Regulations section
1.611-1(c)(4).
Amortization.
The deduction for amortization is apportioned between an estate or trust and its beneficiaries under the same principles
for apportioning the
deductions for depreciation and depletion.
The deduction for the amortization of reforestation expenditures under section 194 is allowed only to an estate.
Allocation of Deductions for Tax-Exempt Income
Generally, no deduction that would otherwise be allowable is allowed for any expense (whether for business or for the production
of income) that is
allocable to tax-exempt income. Examples of tax-exempt income include:
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Certain death benefits (section 101),
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Interest on state or local bonds (section 103),
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Compensation for injuries or sickness (section 104), and
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Income from discharge of indebtedness in a title 11 case (section 108).
Exception.
State income taxes and business expenses that are allocable to tax-exempt interest are deductible.
Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion
of expenses indirectly
allocable to both tax-exempt income and other income must be allocated to each class of income.
Deductions That May Be Allowable for Estate Tax Purposes
Administration expenses and casualty and theft losses deductible on Form 706 may be deducted, to the extent otherwise deductible
for income tax
purposes, on Form 1041 if the fiduciary files a statement waiving the right to deduct the expenses and losses on Form 706.
The statement must be filed
before the expiration of the statutory period of limitations for the tax year the deduction is claimed. See Pub. 559 for more
information.
Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year that: (a) all events have occurred that determine
the liability;
and (b) the amount of the liability can be figured with reasonable accuracy. However, all the events that establish liability
are treated as occurring
only when economic performance takes place. There are exceptions for recurring items. See section 461(h).
Limitations on Deductions
Generally, the amount the estate or trust has “at-risk” limits the loss it can deduct for any tax year. Use Form 6198, At-Risk Limitations, to
figure the deductible loss for the year and file it with Form 1041. For more information, see Pub. 925, Passive Activity and
At-Risk Rules.
Passive Activity Loss and Credit Limitations
In general.
Section 469 and the regulations thereunder generally limit losses from passive activities to the amount of income
derived from all passive
activities. Similarly, credits from passive activities are generally limited to the tax attributable to such activities. These
limitations are first
applied at the estate or trust level.
Generally, an activity is a passive activity if it involves the conduct of any trade or business, and the taxpayer
does not materially participate
in the activity. Passive activities do not include working interests in oil and gas properties. See section 469(c)(3).
Note.
Material participation standards for estates and trusts have not been established by regulations.
For a grantor trust, material participation is determined at the grantor level.
If the estate or trust distributes an interest in a passive activity, the basis of the property immediately before
the distribution is increased by
the passive activity losses allocable to the interest, and such losses cannot be deducted. See section 469(j)(12).
Losses from passive activities are first subject to the at-risk rules. When the losses are deductible under the at-risk rules,
the passive activity
rules then apply.
Rental activities.
Generally, rental activities are passive activities, whether or not the taxpayer materially participates. However,
certain taxpayers who materially
participate in real property trades or businesses are not subject to the passive activity limitations on losses from rental
real estate activities in
which they materially participate. For more details, see section 469(c)(7).
For tax years of an estate ending less than 2 years after the decedent's date of death, up to $25,000 of deductions
and deduction equivalents of
credits from rental real estate activities in which the decedent actively participated are allowed. Any excess losses and/or
credits are suspended for
the year and carried forward.
Portfolio income.
Portfolio income is not treated as income from a passive activity, and passive losses and credits generally may not
be applied to offset it.
Portfolio income generally includes interest, dividends, royalties, and income from annuities. Portfolio income of an estate
or trust must be
accounted for separately.
Forms to file.
See Form 8582, Passive Activity Loss Limitations, to figure the amount of losses allowed from passive activities.
See Form 8582-CR, Passive
Activity Credit Limitations, to figure the amount of credit allowed for the current year.
Transactions Between Related Taxpayers
Under section 267, a trust that uses the accrual method of accounting may only deduct business expenses and interest owed
to a related party in the
year the payment is included in the income of the related party. For this purpose, a related party includes:
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A grantor and a fiduciary of any trust;
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A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;
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A fiduciary of a trust and a beneficiary of such trust;
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A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;
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A fiduciary of a trust and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly,
by or
for the trust or by or for a person who is a grantor of the trust; and
-
An executor of an estate and a beneficiary of that estate, except for a sale or exchange to satisfy a pecuniary bequest (that
is a bequest
of a sum of money).
Enter the amount of interest (subject to limitations) paid or incurred by the estate or trust on amounts borrowed by the estate
or trust, or on
debt acquired by the estate or trust (for example, outstanding obligations from the decedent) that is not claimed elsewhere
on the return.
If the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire
an interest in a
passive activity), the fiduciary must make an interest allocation according to the rules in Temporary Regulations section
1.163-8T.
Do not include interest paid on indebtedness incurred or continued to purchase or carry obligations on which the interest
is wholly exempt from
income tax.
Personal interest is not deductible. Examples of personal interest include interest paid on:
-
Revolving charge accounts used to purchase personal use property;
-
Personal notes for money borrowed from a bank, credit union, or other person;
-
Installment loans on personal use property; and
-
Underpayments of federal, state, or local income taxes.
Interest that is paid or incurred on indebtedness allocable to a trade or business (including a rental activity) should be
deducted on the
appropriate line of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or
6 of Form 1041.
Types of interest to include on line 10 are:
-
Any investment interest (subject to limitations—see below);
-
Any qualified residence interest (see later); and
-
Any interest payable under section 6601 on any unpaid portion of the estate tax attributable to the value of a reversionary
or remainder
interest in property for the period during which an extension of time for payment of such tax is in effect.
Investment interest.
Generally, investment interest is interest (including amortizable bond premium on taxable bonds acquired after October
22, 1986, but before January
1, 1988) that is paid or incurred on indebtedness that is properly allocable to property held for investment. Investment interest
does not include any
qualified residence interest, or interest that is taken into account under section 469 in figuring income or loss from a passive
activity.
Generally, net investment income is the excess of investment income over investment expenses. Investment expenses
are those expenses (other than
interest) allowable after application of the 2% floor on miscellaneous itemized deductions.
The amount of the investment interest deduction may be limited. Use Form 4952, Investment Interest Expense Deduction,
to figure the allowable
investment interest deduction.
If you must complete Form 4952, check the box on line 10 of Form 1041 and attach Form 4952. Then, add the deductible
investment interest to the
other types of deductible interest and enter the total on line 10.
Qualified residence interest.
Interest paid or incurred by an estate or trust on indebtedness secured by a qualified residence of a beneficiary
of an estate or trust is treated
as qualified residence interest if the residence would be a qualified residence (that is, the principal residence or the second
residence selected by
the beneficiary) if owned by the beneficiary. The beneficiary must have a present interest in the estate or trust or an interest
in the residuary of
the estate or trust. See Pub. 936, Home Mortgage Interest Deduction, for an explanation of the general rules for deducting
home mortgage interest.
See section 163(h)(3) for a definition of qualified residence interest and for limitations on indebtedness.
Enter any deductible taxes paid or incurred during the tax year that are not deductible elsewhere on Form 1041. Deductible
taxes include the
following.
-
State and local income taxes. You can deduct state and local income taxes unless you elect to deduct state and local general
sales taxes.
You cannot deduct both.
-
State and local general sales taxes. You can elect to deduct state and local general sales taxes instead of state and local
income taxes.
Generally, you can elect to deduct the actual state and local general sales taxes (including compensating use taxes) you paid
in 2006 if the tax rate
was the same as the general sales tax rate. However, sales taxes on food, clothing, medical supplies, and motor vehicles are
deductible as a general
sales tax even if the tax rate was less than the general sales tax rate. Sales taxes on motor vehicles are also deductible
as a general sales tax if
the tax rate was more than the general sales tax rate, but the tax is deductible only up to the amount of tax that would have
been imposed at the
general sales tax rate. Motor vehicles include cars, motorcycles, motor homes, recreational vehicles, sport utility vehicles,
trucks, vans, and
off-road vehicles. Also include any state and local general sales taxes paid for a leased motor vehicle. Do not include sales
taxes paid on items used
in a trade or business. An estate or trust cannot use the Optional Sales Tax Tables for individuals in Pub. 600, State and Local General
Sales Taxes, to figure its deduction.
-
State, local, and foreign real property taxes.
-
State and local personal property taxes.
-
Foreign or U.S. possession income taxes. You may want to take a credit for the tax instead of a deduction. See the instructions
for Schedule
G, line 2a, on page 23 for more details.
-
The generation-skipping transfer (GST) tax imposed on income distributions.
Do not deduct:
-
Federal income taxes;
-
Estate, inheritance, legacy, succession, and gift taxes; or
-
Federal duties and excise taxes.
Enter the deductible fees paid or incurred to the fiduciary for administering the estate or trust during the tax year.
Fiduciary fees deducted on Form 706 cannot be deducted on
Form 1041.
Line 15a—Other Deductions Not Subject to the 2% Floor
Attach your own schedule, listing by type and amount, all allowable deductions that are not deductible elsewhere on Form 1041.
Do not include any losses on worthless bonds and similar obligations and nonbusiness bad debts. Report these losses on Schedule
D (Form 1041).
Do not deduct medical or funeral expenses on Form 1041. Medical expenses of the decedent paid by the estate may be deductible
on the decedent's
income tax return for the year incurred. See section 213(c). Funeral expenses are deductible only on Form 706.
The following are examples of deductions that are reported on line 15a.
Bond premium(s).
For taxable bonds acquired before October 23, 1986, if the fiduciary elected to amortize the premium, report the amortization
on this line. You
cannot deduct the amortization for tax-exempt bonds. In all cases where the fiduciary has made an election to amortize the
premium, the basis must be
reduced by the amount of amortization.
For more information, see section 171 and Pub. 550.
If you claim a bond premium deduction for the estate or trust, figure the deduction on a separate sheet and attach
it to
Form 1041.
Casualty and theft losses.
Use Form 4684, Casualties and Thefts, to figure any deductible casualty and theft losses.
Domestic production activities deduction.
The estate or trust may be able to deduct up to 3% of its share of qualified production activities income (QPAI) from
the following activities.
-
Construction performed in the United States.
-
Engineering or architectural services performed in the United States for construction projects in the United States.
-
Any lease, rental, license, sale, exchange, or other disposition of:
-
Tangible personal property, computer software, and sound recordings that the estate or trust manufactured, produced, grew,
or extracted in
whole or in significant part within the United States;
-
Any qualified film the estate or trust produced; or
-
Electricity, natural gas, or potable water the estate or trust produced in the United States.
In certain cases, the United States includes the Commonwealth of Puerto Rico.
The deduction does not apply to income derived from:
-
The sale of food and beverages the estate or trust prepared at a retail establishment;
-
Property the estate or trust leased, licensed, or rented for use by any related person; or
-
The transmission or distribution of electricity, natural gas, or potable water.
The deduction cannot exceed 3% of modified AGI or 50% of certain Form W-2 wages. QPAI, as well as Form W-2 wages,
must be apportioned between the
trust or estate and its beneficiaries. For more details, see Form 8903, Domestic Production Activities Deduction, and its
separate instructions.
Net operating loss deduction (NOLD).
An estate or trust is allowed the net operating loss deduction (NOLD) under section 172.
If you claim an NOLD for the estate or trust, figure the deduction on a separate sheet and attach it to this return.
Estate's or trust's share of amortization, depreciation, and depletion not claimed elsewhere.
If you cannot deduct the amortization, depreciation, and depletion as rent or royalty expenses on Schedule E (Form
1040), or as business or farm
expenses on Schedule C, C-EZ, or F (Form 1040), itemize the fiduciary's share of the deductions on an attached sheet and include
them on line 15a.
Itemize each beneficiary's share of the deductions and report them in the appropriate box of Schedule K-1 (Form 1041).
Line 15b—Allowable Miscellaneous Itemized Deductions Subject to the 2% Floor
Miscellaneous itemized deductions are deductible only to the extent that the aggregate amount of such deductions exceeds 2%
of adjusted gross
income (AGI).
Among the miscellaneous itemized deductions that must be included on line 15b are expenses for the production or collection
of income under section
212, such as investment advisory fees, subscriptions to investment advisory publications, and the cost of safe deposit boxes.
Miscellaneous itemized deductions do not include deductions for:
-
Interest under section 163,
-
Taxes under section 164,
-
The amortization of bond premium under section 171,
-
Estate taxes attributable to income in respect of a decedent under section 691(c), or
-
Expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if
the property
were not held in the estate or trust.
For other exceptions, see section 67(b).
How to figure AGI for estates and trusts.
You figure AGI by subtracting the following from total income on line 9 of page 1:
-
The administration costs of the estate or trust (the total of lines 12, 14, and 15a to the extent they are costs incurred
in the
administration of the estate or trust) that would not have been incurred if the property were not held by the estate or trust;
-
The income distribution deduction (line 18);
-
The amount of the exemption (line 20);
-
The domestic production activities deduction claimed on line 15a; and
-
The net operating loss deduction claimed on line 15a.
For those estates and trusts whose income distribution deduction is limited to the actual distribution, and not the
DNI (that is, the income
distribution is less than the DNI), when computing the AGI, use the amount of the actual distribution.
For those estates and trusts whose income distribution deduction is limited to
the DNI (that is, the actual distribution exceeds the DNI), the DNI must be figured taking into account the allowable miscellaneous
itemized
deductions (AMID) after application of the 2% floor. In this situation there are two unknown amounts: (a) the AMID; and (b)
the DNI.
Computing line 15b.
To compute line 15b, use the equation below:
AMID = Total miscellaneous itemized deductions - (.02(AGI))
The following example illustrates how algebraic equations can be used to solve for these unknown amounts.
Example.
The Malcolm Smith Trust, a complex trust, earned $20,000 of dividend income, $20,000 of capital gains, and a fully
deductible $5,000 loss from XYZ
partnership (chargeable to corpus) in 2006. The trust instrument provides that capital gains are added to corpus. 50% of the
fiduciary fees are
allocated to income and 50% to corpus. The trust claimed a $2,000 deduction on line 12 of Form 1041. The trust incurred $1,500
of miscellaneous
itemized deductions (chargeable to income), which are subject to the 2% floor. There are no other deductions. The trustee
made a discretionary
distribution of the accounting income of $17,500 to the trust's sole beneficiary.
Because the actual distribution can reasonably be expected to exceed the DNI, the trust must figure the DNI, taking
into account the allowable
miscellaneous itemized deductions, to determine the amount to enter on line 15b.
The trust also claims an exemption of $100 on line 20.
Using the facts in this example:
AMID = 1,500 - (.02(AGI))
In all situations, use the following equation to compute the AGI:
AGI = (line 9) - (the total of lines 12, 14, and 15a to the extent they are costs incurred in the administration of
the estate or trust that
would not have been incurred if the property were not held by the estate or trust) - (line 18) - (line 20).
Note.
There are no other deductions claimed by the trust on line 15a that are deductible in arriving at AGI.
Figuring AGI in this example, we get:
AGI = 35,000 - 2,000 - DNI - 100
Since the value of line 18 is not known because it is limited to the DNI, you are left with the following:
AGI = 32,900 - DNI
Substitute the value of AGI in the equation:
AMID = 1,500 - (.02(32,900 - DNI))
The equation cannot be solved until the value of DNI is known. The DNI can be expressed in terms of the AMID. To do
this, compute the DNI using the
known values. In this example, the DNI is equal to the total income of the trust (less any capital gains allocated to corpus;
or plus any capital loss
from line 4); less total deductions from line 16 (excluding any miscellaneous itemized deductions); less the AMID.
Thus, DNI = (line 9) - (line 15, column (2) of Schedule D (Form 1041)) - (line 16) - (AMID)
Substitute the known values:
DNI = 35,000 - 20,000 - 2,000 - AMID
DNI = 13,000 - AMID
Substitute the value of DNI in the equation to solve for AMID:
AMID = 1,500 - (.02(32,900 - (13,000 - AMID)))
AMID = 1,500 - (.02(32,900 - 13,000 + AMID))
AMID = 1,500 - (658 - 260 + .02AMID)
AMID = 1,102 - .02AMID
1.02AMID = 1,102
AMID = 1,080
DNI = 11,920 (i.e., 13,000 - 1,080)
AGI = 20,980 (i.e., 32,900 - 11,920)
Note.
The income distribution deduction is equal to the smaller of the distribution ($17,500) or the DNI ($11,920).
Enter the value of AMID on line 15b (the DNI should equal line 7 of Schedule B) and complete the rest of Form 1041
according to the instructions.
If the 2% floor is more than the deductions subject to the 2% floor, no deductions are allowed.
Line 18—Income Distribution Deduction
If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute
any other amounts to
beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction.
However, if you are filing
for a pooled income fund, do not complete Schedule B. Instead, attach a statement to support the computation of the income
distribution deduction.
If the estate or trust claims an income distribution deduction, complete and attach:
-
Part I (through line 26) and Part II of Schedule I to refigure the deduction on a minimum tax basis, and
-
Schedule K-1 (Form 1041) for each beneficiary to which a distribution was made or required to be made.
Cemetery perpetual care fund.
On line 18, deduct the amount, not more than $5 per gravesite, paid for maintenance of cemetery property. To the right
of the entry space for line
18, enter the number of gravesites. Also write “ Section 642(i) trust” in parentheses after the trust's name at the top of Form 1041. You do not
have to complete Schedules B of Form 1041 and K-1 (Form 1041).
Do not enter less than zero on line 18.
Line 19—Estate Tax Deduction (Including Certain Generation- Skipping Transfer Taxes)
If the estate or trust includes income in respect of a decedent (IRD) in its gross income, and such amount was included in
the decedent's gross
estate for estate tax purposes, the estate or trust is allowed to deduct in the same tax year that the income is included,
that portion of the estate
tax imposed on the decedent's estate that is attributable to the inclusion of the IRD in the decedent's estate. For an example
of the computation, see
Regulations section 1.691(c)-1 and Pub. 559.
If any amount properly paid, credited, or required to be distributed by an estate or trust to a beneficiary consists of IRD
received by the estate
or trust, do not include such amounts in determining the estate tax deduction for the estate or trust. Figure the deduction
on a separate sheet.
Attach the sheet to your return.
If you claim a deduction for estate tax attributable to qualified dividends or capital gains, you may have to adjust the amount
on Form 1041, page
1, line 2b(2), or Schedule D, line 18.
Also, a deduction is allowed for the GST tax imposed as a result of a taxable termination or a direct skip
occurring as a result of the death of the transferor. See section 691(c)(3). Enter the estate's or trust's share of these
deductions on
line 19.
Decedents' estates.
A decedent's estate is allowed a $600 exemption.
Trusts required to distribute all income currently.
A trust whose governing instrument requires that all income be distributed currently is allowed a $300 exemption,
even if it distributed amounts
other than income during the tax year.
Qualified disability trusts.
A qualified disability trust is allowed a $3,300 exemption if the trust's modified AGI is less than or equal to $150,500.
If its modified AGI
exceeds $150,500, complete the worksheet below to figure the amount of the trust's exemption. To figure modified AGI, follow
the instructions for
figuring AGI for line 15b on page 18, except use zero as the amount of the trust's exemption when figuring AGI.
A qualified disability trust is any trust:
-
Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and established solely for the benefit of an individual under 65 years of age who
is disabled,
and
-
All of the beneficiaries of which are determined by the Commissioner of Social Security to have been disabled for some part
of the tax year
within the meaning of 42 U.S.C. 1382c(a)(3).
A trust will not fail to meet 2 above just because the trust's corpus may revert to a person who is not disabled after
the trust ceases to have any
disabled beneficiaries.
All other trusts.
A trust not described above is allowed a $100 exemption.
Exemption Worksheet for Qualified Disability Trusts Only—Line 20
Note: If the trust's modified AGI* is less than or equal to $150,500, enter $3,300 on
Form 1041, line 20. Otherwise, complete the worksheet below to figure the trust's exemption. |
|
|
1. |
Maximum exemption
|
1. |
$3,300
|
2. |
Enter the trust's modified AGI*
|
2.
|
|
|
|
3. |
Threshold amount
|
3.
|
$150,500
|
|
|
4. |
Subtract line 3 from line 2
|
4.
|
|
|
|
Note:If line 4 is more than $122,500, enter $1,100 on line 9 below. Do not complete
lines 5 through 8. |
|
|
|
5. |
Divide line 4 by $2,500. If the result is not a whole number, increase it to the next higher whole number (for example, increase
0.0004
to 1)
|
5. |
|
|
|
6. |
Multiply line 5 by 2% (.02) and enter the result as a decimal
|
6. |
|
|
|
7. |
Multiply line 1 by line 6
|
7. |
|
8. |
Divide line 7 by 1.5
|
8. |
|
9. |
Exemption. Subtract line 8 from line 1. Enter the result here and on Form 1041, line 20
|
9. |
|
|
*Figure the trust's modified AGI in the same manner as AGI is figured in the line 15b instructions on
page 18, except use zero when figuring the amount of the trust's exemption. |
|
|
Minimum taxable income.
Line 22 cannot be less than the larger of:
-
The inversion gain of the estate or trust, as figured under section 7874, if the estate or trust is an expatriated entity
or a partner in an
expatriated entity, or
-
The sum of the excess inclusions of the estate or trust from Schedule Q (Form 1066), line 2c.
Net operating loss.
If line 22 (figured without regard to the minimum taxable income rule stated above) is a loss, the estate or trust
may have a net operating loss
(NOL). Do not include the deductions claimed on lines 13, 18, and 20 when figuring the amount of the NOL.
Generally, an NOL may be carried back to the prior 2 tax years (3 years to the extent the loss is an eligible loss;
5 years to the extent the loss
is a farming loss; 10 years to the extent the loss is a specified liability loss). An estate or trust may also elect to carry
an NOL forward only,
instead of first carrying it back. For more information, see the Instructions for Form 1045.
Complete Schedule A of Form 1045, Application for Tentative Refund, to figure the amount of the NOL that is available
for carryback or carryover.
Use Form 1045 or file an amended return to apply for a refund based on an NOL carryback. For more details, see Pub. 536, Net
Operating Losses (NOLs)
for Individuals, Estates, and Trusts.
On the termination of the estate or trust, any unused NOL carryover that would be allowable to the estate or trust
in a later tax year, but for the
termination, is allowed to the beneficiaries succeeding to the property of the estate or trust. See the instructions for Schedule
K-1, box 11, codes D
and E.
Excess deductions on termination.
If the estate or trust has for its final year deductions (excluding the charitable deduction and exemption) in excess
of its gross income, the
excess is allowed as an itemized deduction to the beneficiaries succeeding to the property of the estate or trust.
In general, an unused NOL carryover that is allowed to beneficiaries (as explained above) cannot also be treated as
an excess deduction. However,
if the final year of the estate or trust is also the last year of the NOL carryover period, the NOL carryover not absorbed
in that tax year by the
estate or trust is included as an excess deduction. See the instructions for Schedule K-1, box 11, code A.
Line 24a—2006 Estimated Tax Payments and Amount Applied From 2005 Return
Enter the amount of any estimated tax payment you made with Form 1041-ES for 2006 plus the amount of any overpayment from
the 2005 return that was
applied to the 2006 estimated tax.
If the estate or trust is the beneficiary of another trust and received a payment of estimated tax that was credited to the
trust (as reflected on
the Schedule K-1 issued to the trust), then report this amount separately with the notation “section 643(g)” in the space next to line 24a and
include this amount in the amount entered on line 24a.
Do not include on Form 1041 estimated tax paid by an individual before death. Instead, include those payments on the decedent's
final income tax
return.
Line 24b—Estimated Tax Payments Allocated to Beneficiaries
The trustee (or executor, for the final year of the estate) may elect under section 643(g) to have any portion of its estimated
tax treated as a
payment of estimated tax made by a beneficiary or beneficiaries. The election is made on Form 1041-T, Allocation of Estimated
Tax Payments to
Beneficiaries, which must be filed by the 65th day after the close of the trust's tax year. Form 1041-T shows the amounts
to be allocated to each
beneficiary. This amount is reported on the beneficiary's Schedule K-1, box 13, using code A.
Attach Form 1041-T to your return only if you have not yet filed it; however, attaching Form 1041-T to Form 1041 does not
extend the due date for
filing Form 1041-T. If you have already filed Form 1041-T, do not attach a copy to your return.
Failure to file Form 1041-T by the due date (March 6, 2007, for calendar year estates and trusts) will result in an invalid
election. An invalid
election will require the filing of amended Schedules K-1 for each beneficiary who was allocated a payment of estimated tax.
Line 24d—Tax Paid With Form 7004
If you filed Form 7004 to request an extension of time to file Form 1041, enter the amount that you paid with the extension
request.
Line 24e—Federal Income Tax Withheld
Use line 24e to claim a credit for any federal income tax withheld (and not repaid) by: (a) an employer on wages and salaries
of a decedent
received by the decedent's estate; (b) a payer of certain gambling winnings (for example, state lottery winnings); or (c)
a payer of distributions
from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc., received by a decedent's estate
or trust. Attach a copy
of Form W-2, Form W-2G, or Form 1099-R to the front of the return.
Except for backup withholding (as explained below), withheld income tax may not be passed through to beneficiaries on either
Schedule K-1 or Form
1041-T.
Backup withholding.
If the estate or trust received a 2006 Form 1099 showing federal income tax withheld (that is, backup withholding)
on interest income, dividends,
or other income, check the box and include the amount withheld on income retained by the estate or trust in the total for
line 24e.
Report on Schedule K-1 (Form 1041), box 13, using code B, any credit for backup withholding on income distributed
to the beneficiary.
Line 24f—Credit for Federal Telephone Excise Tax Paid
If the estate or trust was billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax
on long distance or
bundled service, the estate or trust may be able to request a credit for the tax paid. The estate or trust had bundled service
if its local and long
distance service was provided under a plan that does not separately state the charge for local service. The estate or trust
cannot request the credit
if it has already received a credit or refund from its service provider. If the estate or trust requests the credit, it cannot
ask its service
provider for a credit or refund and must withdraw any request previously submitted to its provider.
The estate or trust can request the credit by attaching Form 8913, Credit for Federal Telephone Excise Tax Paid, showing the
actual amount the
estate or trust paid. The entity also may be able to request the credit based on an estimate of the amount paid. See Form
8913 for details. In either
case, the entity must keep records to substantiate the amount of the credit requested.
Line 24g—Credit For Tax Paid on Undistributed Capital Gains
Attach Copy B of Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.
Line 24h—Credit for Federal Tax on Fuels
Enter any credit for federal excise taxes paid on fuels that are ultimately used for nontaxable purposes (for example, an
off-highway business
use). Attach Form 4136, Credit for Federal Tax Paid on Fuels. See Pub. 510, Excise Taxes for 2006, for more information.
Line 26—Estimated Tax Penalty
If line 27 is at least $1,000 and more than 10% of the tax shown on Form 1041, or the estate or trust underpaid its 2006 estimated
tax liability
for any payment period, it may owe a penalty. See Form 2210 to determine whether the estate or trust owes a penalty and to
figure the amount of the
penalty.
Note.
The penalty may be waived under certain conditions. See Pub. 505, Tax Withholding and Estimated Tax, for details.
You must pay the tax in full when the return is filed. Make the check or money order payable to the “United States Treasury.” Write the EIN
and “2006 Form 1041” on the payment. Enclose, but do not attach, the payment with Form 1041.
You may use EFTPS to pay the tax due for a trust. See Electronic Deposits on page 8.
Line 29a—Credited to 2007 Estimated Tax
Enter the amount from line 28 that you want applied to the estate's or trust's 2007 estimated tax.
Schedule A—Charitable Deduction
Generally, any part of the gross income of an estate or trust (other than a simple trust) that, under the terms of the will
or governing
instrument, is paid (or treated as paid) during the tax year for a charitable purpose specified in section 170(c) is allowed
as a deduction to the
estate or trust. It is not necessary that the charitable organization be created or organized in the United States.
A pooled income fund,
a nonexempt charitable trust
treated as a private foundation, or a trust with unrelated business income should attach a separate
sheet to Form 1041 instead of using Schedule A of Form 1041 to figure the charitable deduction.
Additional return to be filed by trusts.
Trusts that claim a charitable deduction must also file Form 1041-A. See Form 1041-A for exceptions.
Election to treat contributions as paid in the prior tax year.
The fiduciary of an estate or trust may elect to treat as paid during the tax year any amount of gross income received
during that tax year or any
prior tax year that was paid in the next tax year for a charitable purpose.
For example, if a calendar year estate or trust makes a qualified charitable contribution on February 7, 2007, from
income earned in 2006 or prior,
then the fiduciary can elect to treat the contribution as paid in 2006.
To make the election, the fiduciary must file a statement with Form 1041 for the tax year in which the contribution
is treated as paid. This
statement must include:
-
The name and address of the fiduciary;
-
The name of the estate or trust;
-
An indication that the fiduciary is making an election under section 642(c)(1) for contributions treated as paid during such
tax
year;
-
The name and address of each organization to which any such contribution is paid; and
-
The amount of each contribution and date of actual payment or, if applicable, the total amount of contributions paid to each
organization
during the next tax year, to be treated as paid in the prior tax year.
The election must be filed by the due date (including extensions) for Form 1041 for the next tax year. If the original
return was filed on time,
you may make the election on an amended return filed no later than 6 months after the due date of the return (excluding extensions).
Write “ Filed
pursuant to section 301.9100-2” at the top of the amended return and file it at the same address you used for your original return.
For more information about the charitable deduction, see section 642(c) and related regulations.
Line 1—Amounts Paid or Permanently Set Aside for Charitable Purposes From Gross Income
Enter amounts that were paid for a charitable purpose out of the estate's or trust's gross income, including any capital gains
that are
attributable to income under the governing instrument or local law. Include amounts paid during the tax year from gross income
received in a prior tax
year, but only if no deduction was allowed for any prior tax year for these amounts.
Estates, and certain trusts, may claim a deduction for amounts permanently set aside for a charitable purpose from gross income.
Such amounts must
be permanently set aside during the tax year to be used exclusively for religious, charitable, scientific, literary, or educational
purposes, or for
the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public
cemetery not operated
for profit.
For a trust to qualify, the trust may not be a simple trust, and the set aside amounts must be required by the terms of a
trust instrument that was
created on or before October 9, 1969.
Further, the trust instrument must provide for an irrevocable remainder interest to be transferred to or for the use of an
organization described
in section 170(c); or the trust must have been created by a grantor who was at all times after October 9, 1969, under a mental
disability to change
the terms of the trust.
Also, certain testamentary trusts that were established by a will that was executed on or before October 9, 1969, may qualify.
See Regulations
section 1.642(c)-2(b).
Do not include any capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes.
Instead, enter
these amounts on line 4.
Line 2—Tax-Exempt Income Allocable to Charitable Contributions
Any estate or trust that pays or sets aside any part of its income for a charitable purpose must reduce the deduction by the
portion allocable to
any tax-exempt income. If the governing instrument specifically provides as to the source from which amounts are paid, permanently
set aside, or to be
used for charitable purposes, the specific provisions control. In all other cases, determine the amount of tax-exempt income
allocable to charitable
contributions by multiplying line 1 by a fraction, the numerator of which is the total tax-exempt income of the estate or
trust, and the denominator
of which is the gross income of the estate or trust. Do not include in the denominator any losses allocated to corpus.
Line 4—Capital Gains for the Tax Year Allocated to Corpus and Paid or Permanently Set Aside for Charitable Purposes
Enter the total of all capital gains for the tax year that are:
Line 6—Section 1202 Exclusion Allocable to Capital Gains Paid or Permanently Set Aside for Charitable Purposes
If the exclusion of gain from the sale or exchange of qualified small business stock was claimed, enter the part of the gain
included on Schedule
A, lines 1 and 4, that was excluded under section 1202.
Schedule B—Income Distribution Deduction
If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute
any other amounts to
beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction.
Note.
Use Schedule I to compute the DNI
and income distribution deduction on a minimum tax basis.
Pooled income funds.
Do not complete Schedule B for these funds. Instead, attach a separate statement to support the computation
of the income distribution deduction. See Pooled Income Funds on page 7 for more information.
Separate share rule.
If a single trust or an estate has more than one beneficiary, and if different beneficiaries have substantially separate
and independent shares,
their shares are treated as separate trusts or estates for the sole purpose of determining the DNI allocable to the respective
beneficiaries.
If the separate share rule applies, figure the DNI allocable to each beneficiary on a separate sheet and attach the
sheet to this return. Any
deduction or loss that is applicable solely to one separate share of the trust or estate is not available to any other share
of the same trust or
estate.
For more information, see section 663(c) and related regulations.
Withholding of tax on foreign persons.
The fiduciary may be liable for withholding tax on distributions to beneficiaries who are foreign persons. For more
information, see Pub. 515,
Withholding of Tax on Nonresident Aliens and Foreign Entities, and Forms 1042 and 1042-S.
Line 1—Adjusted Total Income
Generally, enter on line 1, Schedule B, the amount from line 17 on page 1 of Form 1041. However, if both line 4 and line 17
on page 1 of Form 1041
are losses, enter on line 1, Schedule B, the smaller of those losses. If line 4 is zero or a gain and line 17 is a loss, enter
zero on line 1,
Schedule B.
If you are filing for a simple trust, subtract from adjusted total income any extraordinary dividends or taxable stock dividends
included on page
1, line 2, and determined under the governing instrument and applicable local law to be allocable to corpus.
Line 2—Adjusted Tax-Exempt Interest
To figure the adjusted tax-exempt interest:
Step 1. Add tax-exempt interest income on line 2 of Schedule A, any expenses allowable under section 212 allocable to tax-exempt
interest, and any interest expense allocable to tax-exempt interest.
Step 2. Subtract the Step 1 total from the amount of tax-exempt interest (including exempt-interest dividends) received.
Section 212 expenses that are directly allocable to tax-exempt interest are allocated only to tax-exempt interest. A reasonable
proportion of
section 212 expenses that are indirectly allocable to both tax-exempt interest and other income must be allocated to each
class of income.
Figure the interest expense allocable to tax-exempt interest according to the guidelines in Rev. Proc. 72-18, 1972-1 C.B.
740.
See Regulations sections 1.643(a)-5 and 1.265-1 for more information.
Include all capital gains, whether or not distributed, that are attributable to income under the governing instrument or local
law. For example, if
the trustee distributed 50% of the current year's capital gains to the income beneficiaries (and reflects this amount in column
(1), line 15 of
Schedule D (Form 1041)), but under the governing instrument all capital gains are attributable to income, then include 100%
of the capital gains on
line 3. If the amount on Schedule D (Form 1041), line 15, column (1) is a net loss, enter zero.
If the exclusion of gain from the sale or exchange of qualified small business stock
was claimed, do not reduce the gain on line 3 by any amount excluded under section 1202.
In figuring the amount of long-term and short-term capital gain for the tax year included on Schedule A, line 1, the specific
provisions of the
governing instrument control if the instrument specifically provides as to the source from which amounts are paid, permanently
set aside, or to be
used for charitable purposes.
In all other cases, determine the amount to enter by multiplying line 1 of Schedule A by a fraction, the numerator of which
is the amount of net
capital gains that are included in the accounting income of the estate or trust (that is, not allocated to corpus) and are
distributed to charities,
and the denominator of which is all items of income (including the amount of such net capital gains) included in the DNI.
Reduce the amount on line 5 by any allocable section 1202 exclusion.
If you are filing for a decedent's estate or a simple trust, skip this line. If you are filing for a complex trust, enter
the income for the tax
year determined under the terms of the governing instrument and applicable local law. Do not include extraordinary dividends
or taxable stock
dividends determined under the governing instrument and applicable local law to be allocable to corpus.
Do not include any:
-
Amounts deducted on prior year's return that were required to be distributed in the prior year;
-
Amount that is properly paid or credited as a gift or bequest of a specific amount of money or specific property. (To qualify
as a gift or
bequest, the amount must be paid in three or fewer installments.) An amount that can be paid or credited only from income
is not considered a gift or
bequest; or
-
Amount paid or permanently set aside for charitable purposes or otherwise qualifying for the charitable deduction.
Line 9—Income Required To Be Distributed Currently
Line 9 is to be completed by all simple trusts as well as complex trusts and decedent's estates, that are required to distribute
income currently,
whether it is distributed or not. The determination of whether trust income is required to be distributed currently depends
on the terms of the
governing instrument and the applicable local law.
The line 9 distributions are referred to as first
tier distributions and are deductible by the estate or trust to the extent of the DNI. The beneficiary
includes such amounts in his or her income to the extent of his or her proportionate share of the DNI.
Line 10—Other Amounts Paid, Credited, or Otherwise Required To Be Distributed
Line 10 is to be completed only by a decedent's estate or complex trust. These distributions consist of any other amounts
paid, credited, or
required to be distributed and are referred to as second tier distributions. Such amounts include annuities to the extent
not paid out of income,
mandatory and discretionary distributions of corpus, and distributions of property in kind.
If Form 1041-T was timely filed to elect to treat estimated tax payments as made by a beneficiary, the payments are treated
as paid or credited to
the beneficiary on the last day of the tax year and must be included on line 10.
Unless a section 643(e)(3)
election is made, the value of all noncash property actually paid, credited, or required to be
distributed to any beneficiaries is the smaller of:
-
The estate's or trust's adjusted basis in the property immediately before distribution, plus any gain or minus any loss recognized
by the
estate or trust on the distribution (basis of beneficiary), or
-
The fair market value (FMV) of such property.
If a section 643(e)(3) election is made by the fiduciary, then the amount entered on line 10 will be the FMV of the property.
A fiduciary of a complex trust or a decedent's estate may elect to treat any amount paid or credited to a beneficiary within
65 days following the
close of the tax year as being paid or credited on the last day of that tax year. To make this election, see the instructions
for Question 6 on page
25.
The beneficiary includes the amounts on line 10 in his or her income only to the extent of his or her proportionate share
of the DNI.
Complex trusts.
If the second
tier distributions exceed the DNI allocable to the second tier, the trust may have an accumulation
distribution. See the line 11 instructions below.
Line 11—Total Distributions
If line 11 is more than line 8, and you are filing for a complex trust that has previously accumulated income, see the instructions
on page 39 to
see if you must complete Schedule J (Form 1041).
Line 12—Adjustment for Tax-Exempt Income
In figuring the income distribution deduction, the estate or trust is not allowed a deduction for any item of the DNI that
is not included in the
gross income of the estate or trust. Thus, for purposes of figuring the allowable income distribution deduction, the DNI (line
7) is figured without
regard to any tax-exempt interest.
If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI (line 7) is
less than or equal to
line 11, then enter on line 12 the amount from line 2.
If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI is more than
line 11 (that is, the
estate or trust made a distribution that is less than the DNI), then figure the adjustment by multiplying line 2 by a fraction,
the numerator of which
is the total distributions (line 11), and the denominator of which is the DNI (line 7). Enter the result on line 12.
If line 11 includes tax-exempt income other than tax-exempt interest, figure line 12 by subtracting the total of the following
from tax-exempt
income included on
line 11:
-
The charitable contribution deduction allocable to such tax-exempt income, and
-
Expenses allocable to tax-exempt income.
Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion
of expenses indirectly
allocable to both tax-exempt income and other income must be allocated to each class of income.
Schedule G—Tax Computation
2006 tax rate schedule.
For tax years beginning in 2006, figure the tax using the Tax Rate Schedule below and enter the tax on line 1a. However,
see the instructions for
Schedule D and the Qualified Dividends Tax Worksheet below.
2006 Tax Rate Schedule |
If taxable income is: |
|
|
|
Over— |
But not over— |
Its tax is: |
Of the amount over— |
$0
|
$2,050
|
15%
|
$0
|
2,050
|
4,850
|
$307.50 + 25%
|
2,050
|
4,850
|
7,400
|
1007.50 + 28%
|
4,850
|
7,400
|
10,050
|
1,721.50 + 33%
|
7,400
|
10,050
|
-----
|
2,596.00 + 35%
|
10,050
|
|
|
|
|
|
Schedule D and Schedule D Tax Worksheet.
Use Part V of Schedule D or the Schedule D Tax Worksheet, whichever is applicable, to figure the estate's or trust's
tax if the estate or trust
files Schedule D and has:
-
A net capital gain and any taxable income, or
-
Qualified dividends on line 2b(2) of Form 1041 and any taxable income.
Qualified Dividends Tax Worksheet.
If you do not have to complete Part I or Part II of Schedule D and the estate or trust has an amount entered on line
2b(2) of Form 1041 and any
taxable income (line 22), then figure the estate's or trust's tax using the worksheet below and enter the tax on line 1a.
Note.
You must reduce the amount you enter on line 2b(2) of Form 1041 by the portion of the section 691(c) deduction claimed on
line 19 of Form 1041 if
the estate or trust received qualified dividends that were income in respect of a decedent.
Qualified Dividends Tax Worksheet—Schedule G, line 1a
Caution:Do notuse this worksheet if the estate or trust must
complete Schedule D. |
|
|
1. |
|
Enter the amount from Form 1041, line 22
|
1.
|
|
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|
|
2. |
|
Enter the amount from Form 1041, line 2b(2)
|
2.
|
|
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|
|
|
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3. |
|
If you are claiming investment interest expense on Form 4952, enter the amount from line 4g; otherwise
enter -0-
|
3.
|
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|
|
|
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4. |
|
Subtract line 3 from line 2. If zero or less, enter -0-
|
4.
|
|
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|
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5.
|
|
Subtract line 4 from line 1. If zero or less, enter -0-
|
5.
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|
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|
|
6.
|
|
Enter the smaller of the amount on line 1 or $2,050
|
6.
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7. |
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Is the amount on line 5 equal to or more than the amount on line 6?
|
|
|
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|
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|
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Yes. |
Skip lines 7 through 9; go to line 10 and check the "No" box.
|
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|
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No. |
Enter the amount from line 5
|
7.
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8. |
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Subtract line 7 from line 6
|
8.
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9. |
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Multiply line 8 by 5% (.05)
|
9.
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10.
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Are the amounts on lines 4 and 8 the same?
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Yes. |
Skip lines 10 through 13; go to line 14.
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No. |
Enter the smaller of line 1 or line 4
|
10.
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11.
|
|
Enter the amount from line 8 (if line 8 is blank, enter -0-)
|
11.
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12.
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Subtract line 11 from line 10
|
12.
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13.
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Multiply line 12 by 15% (.15)
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13.
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14.
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Figure the tax on the amount on line 5. Use the 2006 Tax Rate Schedule
|
14.
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15.
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Add lines 9, 13, and 14
|
15.
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16.
|
|
Figure the tax on the amount on line 1. Use the 2006 Tax Rate Schedule
|
16.
|
|
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17.
|
|
Tax on all taxable income. Enter the smaller of line 15 or line 16 here and on Sch.
G, line 1a
|
17.
|
|
|
Line 2a—Foreign Tax Credit
Attach Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), if you elect to claim credit for income or profits taxes
paid or accrued to a
foreign country or a U.S. possession. The estate or trust may claim credit for that part of the foreign taxes not allocable
to the beneficiaries
(including charitable beneficiaries). Enter the estate's or trust's share of the credit on line 2a. See Pub. 514, Foreign
Tax Credit for Individuals,
for details.
Line 2b—Other Nonbusiness Credits
Qualified electric vehicle credit.
Complete and attach Form 8834, Qualified Electric Vehicle Credit, if the estate or trust claims a credit for a new
qualified electric vehicle
placed in service in 2006. Include the credit on line 2b.
Alternative motor vehicle credit.
Complete and attach Form 8910, Alternative Motor Vehicle Credit, if the estate claims a credit for alternative motor
vehicles. Include the credit
for nondepreciable property on line 2b.
Alternative fuel vehicle refueling property credit.
Complete and attach Form 8911, Alternative Fuel Vehicle Refueling Property Credit, if the estate claims a credit for
alternative fuel vehicle
refueling property. Include the credit for nondepreciable property on line 2b.
Line 2c—General Business Credit
Do not include any amounts that are allocated to a beneficiary. Credits that are allocated between the estate or trust and
the beneficiaries are
listed in the instructions for Schedule K-1, box 13, on page 44. Generally, these credits are apportioned on the basis of
the income allocable to the
estate or trust and the beneficiaries.
Enter on line 2c the estate's or trust's total general business credit.
If the estate or trust is filing Form 8844, Empowerment Zone and Renewal Community Employment Credit; Form 6478, Credit for
Alcohol Used as Fuel;
or Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit; that has a credit from Section B, check
the “Forms” box,
enter the form number in the space provided and include the allowable credit on line 2c.
The estate or trust must file Form 3800, General Business Credit, to claim any of the following general business credits listed
on that form. If
the estate or trust claims any of these credits, check the “Form 3800” box and include the allowable credit on line 2c. Do not enter on line 2c
any of the source credit form numbers listed below for any credit claimed on Form 3800.
-
Investment credit (Form 3468).
-
Work opportunity credit (Form 5884).
-
Welfare-to-work credit (Form 8861).
-
Credit for increasing research activities (Form 6765).
-
Low-income housing credit (Form 8586).
-
Enhanced oil recovery credit (only from partnerships and S corporations) (Form 8830).
-
Disabled access credit (Form 8826).
-
Renewable electricity, refined coal, and Indian coal production credit (Form 8835, Section A only).
-
Indian employment credit (Form 8845).
-
Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846).
-
Orphan drug credit (Form 8820).
-
New markets credit (Form 8874).
-
Credit for small employer pension plan startup costs (Form 8881).
-
Credit for employer-provided child care facilities and services (Form 8882).
-
Qualified railroad track maintenance credit (Form 8900).
-
Biodiesel and renewable diesel fuels credit (Form 8864).
-
Low sulfur diesel fuel production credit (Form 8896).
-
Distilled spirits credit (Form 8906).
-
Nonconventional source fuel credit (Form 8907).
-
Energy efficient home credit (Form 8908).
-
Energy efficient appliance credit (Form 8909).
-
Alternative motor vehicle credit (Form 8910).
-
Alternative fuel vehicle refueling property credit (Form 8911).
-
Mine rescue team training credit (Form 8923).
-
Credit for contributions to selected community development corporations (Form 8847).
-
General credits from an electing large partnership. Report these credits on Form 3800, line 1z.
-
Credits for employers affected by Hurricane Katrina, Rita, or Wilma (Form 5884-A).
Line 2d—Credit for Prior Year Minimum Tax
An estate or trust that paid alternative minimum tax in a previous year may be eligible for a minimum tax credit in 2006.
See Form 8801, Credit for
Prior Year Minimum Tax—Individuals, Estates, and Trusts.
Qualified zone academy bond credit.
If the estate or trust received a qualified zone academy bond credit as a shareholder in an S corporation, include
the credit in the line 3 total.
To figure the amount of the allowable credit, the estate or trust must complete Form 8860, Qualified Zone Academy Bond Credit.
On the dotted line to
the left of the entry, write “ QZAB” and the amount of the credit.
Clean renewable energy bond (CREB) and Gulf tax credit bond (GTCB) credits.
Complete and attach Form 8912, Credit for Clean Renewable Energy and Gulf Tax Credit Bonds, if the estate or trust
claims a credit for holding a
CREB or GTCB. Include the credit on line 3. On the dotted line to the left of the entry, write “ CREB” or “ GTCB” and the amount of the
credit. Also, see the instructions for Form 8912 to determine if the estate or trust must include the amount of the credit
in interest income.
Recapture of investment credit.
If the estate or trust disposed of investment credit property or changed its use before the end of the recapture period,
see Form 4255, Recapture
of Investment Credit, to figure the recapture tax allocable to the estate or trust.
Recapture of low-income housing credit.
If the estate or trust disposed of property (or there was a reduction in the qualified basis of the property) on which
the low-income housing
credit was claimed, see Form 8611, Recapture of Low-Income Housing Credit, to figure any recapture tax allocable to the estate
or trust.
Recapture of qualified electric vehicle credit.
If the estate or trust claimed the qualified electric vehicle credit in a prior tax year for a vehicle that ceased
to qualify for the credit, part
or all of the credit may have to be recaptured. See Pub. 535 for details. If the estate or trust owes any recapture tax, include
it on line 5 and
write “ QEVCR” on the dotted line to the left of the entry space.
Recapture of the Indian employment credit.
Generally, if the estate or trust terminates a qualified employee less than 1 year after the date of initial employment,
any Indian employment
credit allowed for a prior tax year by reason of wages paid or incurred to that employee must be recaptured. See Form 8845
for details. If the estate
or trust owes any recapture tax, include it on line 5 and write “ IECR” on the dotted line to the left of the entry space.
Recapture of the new markets credit.
If the estate or trust owes any new markets recapture tax, include it on line 5 and write “ NMCR” on the dotted line to the left of the entry
space. For more information, including how to figure the recapture amount, see section 45D(g).
Recapture of the credit for employer-provided child care facilities.
If the facility ceased to operate as a qualified child care facility or there was a change in ownership, part or all
of the credit may have to be
recaptured. See Form 8882 for details. If the estate or trust owes any recapture tax, include it on line 5 and write “ ECCFR” on the dotted line
to the left of the entry space.
Line 6—Household Employment Taxes
If any of the following apply, get Schedule H (Form 1040), Household Employment Taxes, and its instructions, to see if the
estate or trust owes
these taxes.
-
The estate or trust paid any one household employee cash wages of $1,500 or more in 2006. Cash wages include wages paid by
checks, money
orders, etc. When figuring the amount of cash wages paid, combine cash wages paid by the estate or trust with cash wages paid
to the household
employee in the same calendar year by the household of the decedent or beneficiary for whom the administrator, executor, or
trustee of the estate or
trust is acting.
-
The estate or trust withheld federal income tax during 2006 at the request of any household employee.
-
The estate or trust paid total cash wages of $1,000 or more in any calendar quarter of 2005 or 2006 to household employees.
Tax on electing small business trusts (ESBTs).
Attach the tax computation to the return. To the left of the line 7 entry space, write “ Sec. 641(c)” and the amount of tax on the S
corporation items. Include this amount in the total tax on line 7.
See Electing Small Business Trusts on page 7 for the special tax computation rules that apply to the portion of an ESBT consisting of
stock in one or more S corporations.
Interest on deferred tax attributable to installment sales of certain timeshares and residential lots and certain nondealer
real property installment obligations.
If an obligation arising from the disposition of real property to which section 453(l) or 453A applies is outstanding
at the close of the year, the
estate or trust must include the interest due under section 453(l)(3)(B) or 453A(c), whichever is applicable, in the amount
to be entered on line 7 of
Schedule G, Form 1041, with the notation “ Section 453(l) interest” or “ Section 453A(c) interest,” whichever is applicable. Attach a schedule
showing the computation.
Form 4970, Tax on Accumulation Distribution of Trusts.
Include on this line any tax due on an accumulation distribution from a trust. To the left of the entry space, write
“ From Form 4970” and the
amount of the tax.
Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts.
Include the interest due under the look-back method of section 460(b)(2).
To the left of the entry space, write “ From Form 8697” and the amount of interest due.
Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method.
Include the interest due under the look-back method of section 167(g)(2). To the left of the entry space, write “ From Form 8866” and the
amount of interest due.
Interest on deferral of gain from certain constructive ownership transactions.
Include the interest due under section 1260(b) on any deferral of gain from certain constructive ownership transactions.
To the left of the entry
space, write “ 1260(b)” and the amount of interest due.
Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.
If the estate or trust fails to receive the minimum distribution under section 4974, use Form 5329 to pay the excise
tax. To the left of the entry
space, write “ From Form 5329” and the amount of the tax.
If the estate or trust received tax-exempt income, figure the allocation of expenses between tax-exempt and taxable income
on a separate sheet and
attach it to the return. Enter only the deductible amounts on the return. Do not figure the allocation on the return itself.
For more information, see
the instructions for Allocation of Deductions for Tax-Exempt Income on page 16.
Report the amount of tax-exempt interest income received or accrued in the space provided below Question 1.
Also, include any exempt-interest dividends the estate or trust received as a shareholder in a mutual fund or other regulated
investment company.
All salaries, wages, and other compensation for personal services must be included on the return of the person who earned
the income, even if the
income was irrevocably assigned to a trust by a contract assignment or similar arrangement.
The grantor or person creating the trust is considered the owner if he or she keeps “beneficial enjoyment” of or substantial control over the
trust property. The trust's income, deductions, and credits are allocable to the owner.
If you checked “Yes” for Question 2, see Special Filing Instructions for Grantor Type Trusts, Pooled Income Funds, and Electing Small
Business Trusts on
page 5.
Check the “Yes” box and enter the name of the foreign country if either 1 or 2 below applies.
-
The estate or trust owns more than 50% of the stock in any corporation that owns one or more foreign bank accounts.
-
At any time during the year the estate or trust had an interest in or signature or other authority over a bank, securities,
or other
financial account in a foreign country.
Exception.
Check “ No” if either of the following applies to the estate or trust:
-
The combined value of the accounts was $10,000 or less during the whole year, or
-
The accounts were with a U.S. military banking facility operated by a U.S. financial institution.
Get Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, to see if the estate or trust is considered
to have an interest in or
signature or other authority over a bank, securities, or other financial account in a foreign country. You can get Form TD
F 90-22.1 from the IRS
website at
www.irs.gov/pub/irs-pdf/f9022-1.pdf.
If you checked “ Yes” for Question 3, file Form TD F 90-22.1 by June 30, 2007, with the Department of the Treasury at the address shown on the
form. Form TD F 90-22.1 is not a tax return, so do not file it with Form 1041.
If you are required to file Form TD F 90-22.1 but do not, you may have to pay a penalty of up to $10,000 (more in some cases).
The estate or trust may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts
and Receipt of Certain Foreign Gifts, if:
-
It directly or indirectly transferred property or money to a foreign trust. For this purpose, any U.S. person who created
a foreign trust is
considered a transferor;
-
It is treated as the owner of any part of the assets of a foreign trust under the grantor trust rules; or
-
It received a distribution from a foreign trust.
An owner of a foreign trust must ensure that the trust files an annual information return on Form 3520-A, Annual Information
Return of Foreign
Trust With a U.S. Owner.
An estate or trust claiming an interest deduction for qualified residence interest (as defined in section 163(h)(3)) on seller-provided
financing,
must include on an attachment to the 2006 Form 1041 the name, address, and taxpayer identifying number of the person to whom
the interest was paid or
accrued (that is, the seller).
If the estate or trust received or accrued such interest, it must provide identical information on the person liable for such
interest (that is,
the buyer). This information does not need to be reported if it duplicates information already reported on Form 1098.
To make the section 663(b) election to treat any amount paid or credited to a beneficiary within 65 days following the close
of the tax year as
being paid or credited on the last day of that tax year, check the box. This election can be made by the fiduciary of a complex
trust or the executor
of a decedent's estate. For the election to be valid, you must file Form 1041 by the due date (including extensions). Once
made, the election is
irrevocable.
To make the section 643(e)(3) election to recognize gain on property distributed in kind, check the box and see the instructions
for Schedule D
(Form 1041).
Generally, a beneficiary is a skip person if the beneficiary is in a generation that is two or more generations below the
generation of the
transferor to the trust.
To determine if a beneficiary that is a trust is a skip person, and for exceptions to the general rules, see the definition
of a skip person in the
instructions for Schedule R of Form 706.
Schedule I—Alternative Minimum Tax
Use Schedule I to compute:
-
The estate's or trust's alternative minimum taxable income;
-
The income distribution deduction on a minimum tax basis; and
-
The estate's or trust's alternative minimum tax (AMT).
-
Complete Schedule I, Parts I and II, if the estate or trust is required to complete Schedule B.
-
Complete Schedule I if the estate's or trust's share of alternative minimum taxable income (Part I, line 29) exceeds $22,500.
-
Complete Schedule I if the estate or trust claims a credit on line 2b, 2c, or 2d of Schedule G.
Schedule I contains adjustments and tax preference items that are treated differently for regular tax and AMT purposes. If
you, as fiduciary for
the estate or trust, completed a form to figure an item for regular tax purposes, you may have to complete it a second time
for AMT purposes.
Generally, the difference between the amounts on the two forms is the AMT adjustment or tax preference item to enter on Schedule
I. Except for Form
1116, any additional form completed for AMT purposes does not have to be filed with Form 1041.
For regular tax purposes, some deductions and credits may result in carrybacks or carryforwards to other tax years. Examples
are: investment
interest expense; a net operating loss deduction; a capital loss; and the foreign tax credit. Because these items may be refigured
for the AMT, the
carryback or carryforward amount may be different for regular and AMT purposes. Therefore, you should keep records of these
different carryforward and
carryback amounts for the AMT and regular tax. The AMT carryforward will be important in completing Schedule I for 2007.
Credit for Prior Year Minimum Tax
Estates and trusts that paid alternative minimum tax in 2005, or had a minimum tax credit carryforward from the 2005 Form
8801, may be eligible for
a minimum tax credit in 2006. See
Form 8801.
Partners and Shareholders
An estate or trust that is a partner in a partnership or a shareholder in an S corporation must take into account its share
of items of income and
deductions that enter into the computation of its adjustments and tax preference items.
Allocation of Deductions to Beneficiaries
The distributable net alternative minimum taxable income (DNAMTI) of the estate or trust does not include amounts of depreciation,
depletion, and
amortization that are allocated to the beneficiaries, just as the distributable net income (DNI) of the estate or trust does
not include these items
for regular tax purposes.
Report separately in box 12 of Schedule K-1 (Form 1041) any adjustments or tax preference items attributable to depreciation
(code G), depletion
(code H), and amortization (code I) that were allocated to the beneficiaries.
Optional Write-Off for Certain Expenditures
There is no AMT adjustment for the following items if the estate or trust elects to deduct them ratably over the period of
time shown for the
regular tax.
-
Circulation expenditures—3 years (section 173).
-
Research and experimental expenditures—10 years (section 174).
-
Intangible drilling costs—60 months (section 263(c)).
-
Mining exploration and development costs—10 years (sections 616(a) and 617(a)).
The election must be made in the year the expenditure was made and may be revoked only with IRS consent. See section 59(e)
and Regulations section
1.59-1 for more details.
Part I—Estate's or Trust's Share of Alternative Minimum Taxable Income
In determining the alternative minimum taxable income, qualified residence interest (other than qualified housing interest
defined in section
56(e)) is not allowed.
If you completed Form 4952 for regular tax purposes, you may have an adjustment on this line. Refigure your investment interest
expense on a
separate AMT Form 4952 as follows.
Step 1.
On line 1 of the AMT Form 4952, follow the instructions for that line, but also include the following amounts.
-
Any qualified residence interest (other than qualified housing interest) that was paid or accrued on a loan or part of a loan
that is
allocable to property held for investment as defined in section 163(d)(5) (for example, interest on a home equity loan whose
proceeds were invested in
stocks or bonds).
-
Any interest that would have been deductible if interest on specified private activity bonds had been included in income.
See the
instructions for line 8 for the definition of specified private activity bonds.
Step 2.
On line 2, enter the AMT disallowed investment interest expense from 2005.
Step 3.
When completing Part II of the AMT Form 4952, refigure gross income from property held for investment, any net gain
from the disposition of
property held for investment, net capital gain from the disposition of property held for investment, and any investment expenses,
taking into account
all AMT adjustments and tax preference items that apply. Include any interest income and investment expenses from private
activity bonds issued after
August 7, 1986.
When completing line 4g of the AMT Form 4952, enter the smaller of:
-
The amount from line 4g of the regular tax Form 4952, or
-
The total of lines 4b and 4e of the AMT Form 4952.
Step 4.
Complete Part III.
Enter on Schedule I, line 2, the difference between line 8 of the AMT Form 4952 and line 8 of the regular tax Form
4952. If the AMT deduction is
greater, enter the difference as a negative amount.
Enter any state, local, or foreign real property taxes; state or local personal property taxes; state, local, or foreign income
taxes; and any
state and local general sales taxes that were included on line 11 of page 1.
Enter any refunds received in 2006 of taxes described for line 3 above and included in income.
Refigure the depletion deduction for AMT purposes by using only the income and deductions allowed for the AMT when refiguring
the limit based on
taxable income from the property under section 613(a) and the limit based on taxable income, with certain adjustments, under
section 613A(d)(1). Also,
the depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted
basis at the end of the
year, as refigured for the AMT, unless the estate or trust is an independent producer or royalty owner claiming percentage
depletion for oil and gas
wells. Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any
AMT adjustments made this
year or in previous years that affect basis (other than the current year's depletion).
Enter on line 6 the difference between the regular tax and AMT deduction. If the AMT deduction is more than the regular tax
deduction, enter the
difference as a negative amount.
Line 7—Net Operating Loss Deduction
Enter any net operating loss deduction (NOLD) from line 15a of page 1 as a positive amount.
Line 8—Interest From Specified Private Activity Bonds Exempt From the Regular Tax
Enter the interest earned from specified private activity bonds reduced (but not below zero) by any deduction that would have
been allowable if the
interest were includible in gross income for regular tax purposes. Each payer of this type of interest may send a Form 1099-INT
to the estate or trust
showing the amount of this interest in box 9. Specified private activity bonds are any qualified bonds (as defined in section
141) issued after August
7, 1986. See section 57(a)(5) for more information.
Do not include interest on qualified Gulf Opportunity Zone bonds described in section 1400N(a). Exempt-interest dividends
paid by a regulated
investment company are treated as interest from specified private activity bonds to the extent the dividends are attributable
to interest received by
the company on the bonds, minus an allocable share of the expenses paid or incurred by the company in earning the interest.
This amount may also be
reported to the estate or trust on Form 1099-INT in box 9.
Line 9—Qualified Small Business Stock
If the estate or trust claimed the exclusion under section 1202 for gain on qualified small business stock held more than
5 years, multiply the
excluded gain (as shown on Schedule D (Form 1041)) by 7% (.07). Enter the result on line 9 as a positive amount.
Line 10—Exercise of Incentive Stock Options
For regular tax purposes, no income is recognized when an incentive stock option (as defined in section 422(b)) is exercised.
However, this rule
does not apply for AMT purposes. Instead, the estate or trust must generally include on line 10 the excess, if any, of:
-
The FMV of the stock acquired through exercise of the option (determined without regard to any lapse restriction) when its
rights in the
acquired stock first become transferable or when these rights are no longer subject to a substantial risk of forfeiture, over
-
The amount paid for the stock, including any amount paid for the option used to acquire the stock.
Even if the estate's or trust's rights in the stock are not transferable and are subject to a substantial risk of forfeiture,
you may elect to
include in AMT income the excess of the stock's FMV (determined without regard to any lapse restriction) over the exercise
price upon the transfer to
the estate or trust of the stock acquired through exercise of the option. See section 83(b) for more details. The election
must be made no later than
30 days after the date of transfer.
If the estate or trust acquired stock by exercising an option and it disposed of that stock in the same year, the tax treatment
under the regular
tax and the AMT is the same, and no adjustment is required.
Increase the AMT basis of any stock acquired through the exercise of an incentive stock option by the amount of the adjustment.
Line 11—Other Estates and Trusts
If the estate or trust is the beneficiary of another estate or trust, enter the adjustment for minimum tax purposes from box
12, code A, Schedule
K-1 (Form 1041).
Line 12—Electing Large Partnerships
If the estate or trust is a partner in an electing large partnership, enter on line 12 the amount from Schedule K-1 (Form
1065-B), box 6. Take into
account any amount from Schedule K-1 (Form 1065-B), box 5, when figuring the amount to enter on line 15.
Line 13—Disposition of Property
Use this line to report any AMT adjustment related to the disposition of property resulting from refiguring:
-
Gain or loss from the sale, exchange, or involuntary conversion of property reported on Form 4797, Sales of Business Property;
-
Casualty gain or loss to business or income-producing property reported on Form 4684, Casualties and Thefts;
-
Ordinary income from the disposition of property not taken into account in 1 or 2 above or on any other line on Schedule I,
such as a
disqualifying disposition of stock acquired in a prior year by exercising an incentive stock option; and
-
Capital gain or loss (including any carryover that is different for the AMT) reported on Schedule D (Form 1041).
The $3,000 capital loss limitation for the regular tax applies separately for the AMT.
First, figure any ordinary income adjustment related to 3 above. Then, refigure Form 4684, Form 4797, and Schedule D for the
AMT, if applicable, by
taking into account any adjustments you made this year or in previous years that affect the estate's or trust's basis or otherwise
result in a
different amount for AMT. If the estate or trust has a capital loss after refiguring Schedule D for the AMT, apply the $3,000
capital loss limitation
separately to the AMT loss. For each of the four items listed above, figure the difference between the amount included in
taxable income for the
regular tax and the amount included in income for the AMT. Treat the difference as a negative amount if (a) both the AMT and
regular tax amounts are
zero or more and the AMT amount is less than the regular tax amount or (b) the AMT amount is a loss, and the regular tax amount
is a smaller loss, or
zero or more.
Enter on line 13 the combined adjustments for the four items earlier.
Line 14—Depreciation of Assets Placed in Service After 1986
This section describes when depreciation must be refigured for the AMT and how to figure the amount to enter on line 14.
Do not include on this line any depreciation adjustment from:
-
An activity for which the estate or trust is not at risk or income or loss from a partnership or an S corporation if the basis
limitations
under section 704(d) or 1366(d) apply. Take this adjustment into account on line 16;
-
A tax shelter farm activity. Take this adjustment into account on line 23; or
-
A passive activity. Take this adjustment into account on line 15.
What depreciation must be refigured for the AMT?
Generally, you must refigure depreciation for the AMT, including depreciation allocable to inventory costs, for:
-
Property placed in service after 1998 that is depreciated for the regular tax using the 200% declining balance method (generally
3-, 5-, 7-,
or 10-year property under the modified cost recovery system (MACRS)),
-
Section 1250 property placed in service after 1998 that is not depreciated for the regular tax using the straight line method,
and
-
Tangible property placed in service after 1986 and before 1999. If the transitional election was made under section 203(a)(1)(B)
of the Tax
Reform Act of 1986, this rule applies to property placed in service after July 31, 1986.
What depreciation is not refigured for the AMT?
Do not refigure depreciation for the AMT for the following items.
-
Residential rental property placed in service after 1998.
-
Nonresidential real property with a class life of 27.5 years or more placed in service after 1998 that is depreciated for
the regular tax
using the straight line method.
-
Other section 1250 property placed in service after 1998 that is depreciated for the regular tax using the straight line method.
-
Property (other than section 1250 property) placed in service after 1998 that is depreciated for the regular tax using the
150% declining
balance method or the straight line method.
-
Property for which you elected to use the alternative depreciation system (ADS) of section 168(g) for the regular tax.
-
Qualified property that is or was eligible for the special depreciation allowance under section 168(k), 168(l) (in the case
of qualified
cellulosic biomass ethanol plant property), 1400L(b) (in the case of qualified New York Liberty Zone property), or 1400N(d)
(in the case of qualified
Gulf Opportunity Zone property) if the depreciable basis of the property for the AMT is the same as for the regular tax. The
special allowance is
deductible for the AMT, and there also is no adjustment required for any depreciation figured on the remaining basis of the
qualified property if the
depreciable basis of the property for the AMT is the same as for the regular tax. Property for which an election is in effect
to not have the special
allowance apply is not qualified property. See section 168(k) for the definition of qualified property, 168(l) for the definition
of qualified
cellulosic biomass ethanol plan property, 1400L(b)(2) for the definition of qualified New York Liberty Zone property, and
1400N(d)(2) for the
definition of qualified Gulf Opportunity Zone property.
-
Motion picture films, videotapes, or sound recordings.
-
Property depreciated under the unit-of-production method or any other method not expressed in a term of years.
-
Qualified Indian reservation property.
-
Qualified revitalization expenditures for a building for which you elected to claim the commercial revitalization deduction
under section
1400I.
-
A natural gas gathering line placed in service after April 11, 2005.
How is depreciation refigured for the AMT?Property placed in service before 1999.
Refigure depreciation for the AMT using ADS with the same convention used for the regular tax. See the table below
for the method and recovery
period to use.
Property placed in service after 1998.
Use the same convention and recovery period used for the regular tax. For property other than section 1250 property,
use the 150% declining balance
method, switching to straight line the first tax year it gives a larger deduction. For section 1250 property, use the straight
line method.
How is the AMT class life determined?
The class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. The class
lives for the AMT are listed
in Rev. Proc. 87-56, 1987-2 C.B. 674, and in Pub. 946, How To Depreciate Property. Use 12 years for any tangible personal
property
not assigned a class life.
See Pub. 946 for optional tables that can be used to figure AMT depreciation. Rev. Proc. 89-15, 1989-1 C.B. 816, has special
rules for short tax
years and for property disposed of before the end of the recovery period.
How is the line 14 adjustment figured?
Subtract the AMT deduction for depreciation from the regular tax deduction and enter the result. If the AMT deduction
is more than the regular tax
deduction, enter the difference as a negative amount.
In addition to the AMT adjustment to your deduction for depreciation, you must also adjust the amount of depreciation
that was capitalized, if any,
to account for the difference between the rules for the regular tax and the AMT. Include on this line the current year adjustment
to taxable income,
if any, resulting from the difference.
Line 15—Passive Activities
Do not enter again elsewhere on this schedule any AMT adjustment or tax preference item included on this line.
For AMT purposes, the rules described in section 469 apply, except that in applying the limitations, minimum tax rules apply.
Refigure passive activity gains and losses on an AMT basis. Refigure a passive activity gain or loss by taking into account
all AMT adjustments or
tax preference items that pertain to that activity.
You may complete a second Form 8582 to determine the passive activity losses allowed for AMT purposes, but do not send this
AMT Form 8582 to the
IRS.
Enter the difference between the loss reported on page 1, and the AMT loss, if any.
The amount of any passive activity loss that is not deductible (and is therefore carried forward) for AMT purposes is likely
to differ from the
amount (if any) that is carried forward for regular tax purposes. Therefore, it is essential that you retain adequate records
for both AMT and regular
tax purposes.
Publicly traded partnerships (PTPs).
If the estate or trust had a loss from a PTP, refigure the loss using any AMT adjustments, tax preference items, and
any AMT prior year unallowed
loss.
If the loss is from a passive activity, use line 15 instead. If the loss is from a tax shelter farm activity (that is not
passive), use line 23.
Refigure your allowable losses for AMT purposes from activities for which you are not at risk and basis limitations applicable
to interests in
partnerships and stock in S corporations, by taking into account your AMT adjustments and tax preference items. See sections
59(h), 465, 704(d), and
1366(d).
Enter the difference between the loss reported for regular tax purposes and the AMT loss. If the AMT loss is more than the
loss reported for
regular tax purposes, enter the adjustment as a negative amount.
Line 17—Circulation Costs
Do not make this adjustment for expenditures for which you elected the optional 3-year write-off period for regular tax purposes.
Circulation expenditures deducted under section 173(a) for regular tax purposes must be amortized for AMT purposes over 3
years beginning with the
year the expenditures were paid or incurred.
Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a
negative amount.
If the estate or trust had a loss on property for which circulation expenditures have not been fully amortized for the AMT,
the AMT deduction is
the smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining
expenditures to be
amortized for the AMT.
Line 18—Long-Term Contracts
For AMT purposes, the percentage of completion method of accounting described in section 460(b) generally must be used. However,
this rule does not
apply to any home construction contract (as defined in section 460(e)(6)).
Note.
Contracts described in section 460(e)(1) are subject to the simplified method of cost allocation of section 460(b)(4).
Enter the difference between the AMT and regular tax income. If the AMT income is smaller, enter the difference as a negative
amount.
Do not make this adjustment for costs for which you elected the optional 10-year write-off period under section 59(e) for
regular tax purposes.
Expenditures for the development or exploration of a mine or certain other mineral deposits (other than an oil, gas, or geothermal
well) deducted
under sections 616(a) and 617(a) for regular tax purposes must be amortized for AMT purposes over 10 years beginning with
the year the expenditures
were paid or incurred.
Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount
allowed for AMT
purposes exceeds the amount deducted for regular tax purposes, enter the difference as a negative amount.
If the estate or trust had a loss on property for which mining expenditures have not been fully amortized for the AMT, the
AMT deduction is the
smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures
to be amortized
for the AMT.
Line 20—Research and Experimental Costs
Do not make this adjustment for costs paid or incurred in connection with an activity in which the estate or trust materially
participated under
the passive activity rules or for costs for which you elected the optional 10-year write-off for research and experimental
expenditures under section
59(e) for regular tax purposes.
Research and experimental expenditures deducted under section 174(a) for regular tax purposes generally must be amortized
for AMT purposes over 10
years beginning with the year the expenditures were paid or incurred.
Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount
for AMT purposes
exceeds the amount allowed for regular tax purposes, enter the difference as a negative amount.
If the estate or trust had a loss on property for which research and experimental costs have not been fully amortized for
the AMT, the AMT
deduction is the smaller of (a) the loss allowable for the costs had they remained capitalized or (b) the remaining costs
to be amortized for the AMT.
Line 21—Income From Certain Installment Sales Before January 1, 1987
The installment method does not apply for AMT purposes to any nondealer disposition of property that occurred after August
16, 1986, but before the
first day of your tax year that began in 1987, if an installment obligation to which the proportionate disallowance rule applied
arose from the
disposition. Enter on line 21 the amount of installment sale income that was reported for regular tax purposes.
Line 22—Intangible Drilling Costs Preference (IDCs)
Do not make this adjustment for costs for which you elected the optional 60-month write-off under section 59(e) for regular
tax purposes.
IDCs from oil, gas, and geothermal wells are a preference to the extent that the excess IDCs exceed 65% of the net income
from the wells. Figure
the preference for all oil and gas properties separately from the preference for all geothermal properties.
Figure excess IDCs as follows:
-
Determine the amount of the estate's or trust's IDCs allowed for the regular tax under section 263(c), but do not include
any section 263(c)
deduction for nonproductive wells, then
-
Subtract the amount that would have been allowed had you amortized these IDCs over a 120-month period starting with the month
the well was
placed in production.
Cost depletion can be substituted for the amount allowed using amortization over 120 months.
Net income.
Determine net income by reducing the gross income that the estate or trust received or accrued during the tax year
from all oil, gas, and
geothermal wells by the deductions allocable to those wells (reduced by the excess IDCs). When refiguring net income, use
only income and deductions
allowed for the AMT.
Exception.
The preference for IDCs from oil and gas wells does not apply to taxpayers who are independent producers (that is,
not integrated oil companies as
defined in section 291(b)(4)). However, this benefit may be limited. First, figure the IDC preference as if this exception
did not apply. Then, for
purposes of this exception, complete Schedule I through line 23, including the IDC preference and combine lines 1 through
23. If the amount of the IDC
preference exceeds 40% of the total of lines 1 through 23, enter the excess on line 22 (the benefit of this exception is limited).
Otherwise, do not
enter an amount on line 22 (the estate's or trust's benefit from this exception is not limited).
Line 23—Other Adjustments
Enter on line 23 the total of any other adjustments that apply including the following.
-
Depreciation figured using pre-1987 rules. For AMT purposes, use the straight line method to figure depreciation on real
property. Use a recovery period of 19 years for 19-year real property and 15 years for low-income housing. Enter the excess
of depreciation claimed
for regular tax purposes over depreciation refigured using the straight line method. Figure this amount separately for each
property and include on
line 23 only positive amounts.
For leased personal property other than recovery property, enter the amount by which the regular tax depreciation using the
pre-1987 rules exceeds
the depreciation allowable using the straight line method. For leased 10-year recovery property and leased 15-year public
utility property, enter the
amount by which the depreciation deduction determined for regular tax purposes is more than the deduction allowable using
the straight line method
with a half-year convention, no salvage value, and a recovery period of 15 years (22 years for 15-year public utility property).
Figure this amount
separately for each property and include on line 23 only positive amounts.
-
Patron's adjustment. Distributions the estate or trust received from a cooperative may be includible in income. Unless the
distributions are nontaxable, include on line 23 the total AMT patronage dividend adjustment reported to the estate or trust
from the
cooperative.
-
Amortization of pollution control facilities. The amortization deduction under section 169 must be refigured for the AMT. For
facilities placed in service after 1986 and before 1999, figure the amortization deduction for the AMT using the ADS described
in section 168(g). For
facilities placed in service after 1998, figure the AMT deduction under MACRS using the straight line method. Enter the difference
between the regular
tax and AMT deduction. If the AMT amount is greater, enter the difference as a negative amount.
-
Tax shelter farm activities. Figure this adjustment only if the tax shelter farm activity (as defined in section 58(a)(2)) is not
a passive activity. If the activity is passive, include it with any other passive activities on line 15.
Refigure all gains and losses reported for the regular tax from tax shelter farm activities by taking into account any AMT
adjustments and
preferences. Determine tax shelter farm activity gain or loss for the AMT using the same rules used for the regular tax with
the following
modifications. No refigured loss is allowed, except to the extent an estate or trust is insolvent (see section 58(c)(1)).
A refigured loss may not be
used in the current tax year to offset gains from other tax shelter farm activities. Instead, any refigured loss must be suspended
and carried forward
indefinitely until (a) the estate or trust has a gain in a subsequent tax year from the same activity or (b) the activity
is disposed of.
The AMT amount of any tax shelter farm activity loss that is not deductible and is carried forward is likely to differ from
the regular tax amount.
Keep adequate records for both the AMT and regular tax.
Enter the difference between the amount that would be reported for the activity on Schedule E or F for the AMT and the regular
tax amount. If (a)
the AMT loss is more than the regular tax loss, (b) the AMT gain is less than the regular tax gain, or (c) there is an AMT
loss and a regular tax
gain, then enter the adjustment as a negative amount.
Enter any adjustment for amounts reported on Schedule D, Form 4684, or Form 4797 for the activity on line 13 instead.
-
Alcohol fuel credit or biodiesel and renewable diesel fuels credit. If the adjusted total income (line 17, of page 1) includes
the amount of the alcohol fuel credit or the biodiesel and renewable diesel fuels credit under section 87, include that amount
as a negative amount on
line 23.
-
Related adjustments. AMT adjustments and tax preference items may affect deductions that are based on an income limit other than
AGI or modified AGI (for example, farm conservation expenses). Refigure these deductions using the income limit as modified
for the AMT. Include the
difference between the regular tax and AMT deduction on line 23. If the AMT deduction is more than the regular tax deduction,
include the difference
as a negative amount.
Do not make an adjustment on line 23 for an item you refigured on another line of Schedule I (for example, line 6).
Line 24—Alternative Tax Net Operating Loss Deduction (ATNOLD)
The ATNOLD is the sum of the alternative tax net operating loss (ATNOL) carryovers and carrybacks to the tax year, subject
to the limitation
explained below.
The net operating loss (NOL) under section 172(c) is modified for alternative tax purposes by (a) taking into account the
adjustments made under
sections 56 and 58; and (b) reducing the NOL by any item of tax preference under section 57. For an estate or trust that held
a residual interest in a
real estate mortgage investment conduit (REMIC), figure the ATNOLD without regard to any excess inclusion.
If this estate or trust is the beneficiary of another estate or trust that terminated in 2006, include any ATNOL carryover
that was reported in box
11, code E of Schedule K-1 (Form 1041).
The estate's or trust's ATNOLD may be limited. To figure the ATNOLD limitation, first figure AMTI without regard to the ATNOLD
and any domestic
production activities deduction. For this purpose, figure a tentative amount for line 6 of Schedule I by treating line 24
as if it were zero. Then,
figure a tentative total by combining lines 1-23 of Schedule I using the line 6 tentative amount. Add any domestic production
activities
deduction to this tentative total. The ATNOLD limitation is 90% of the result.
However, if an ATNOL that is carried back or carried forward to the tax year is attributable to qualified Gulf Opportunity
Zone losses as defined
in section 1400N(k)(2), the ATNOLD for the tax year is limited to the sum of:
-
The smaller of:
-
The sum of the ATNOL carrybacks and carryforwards to the tax year attributable to net operating losses other than qualified
Gulf Opportunity
Zone losses, or
-
Ninety percent of AMTI for the tax year (figured without regard to the ATNOLD and any domestic production activities deduction,
as discussed
earlier), plus
-
The smaller of:
-
The sum of the ATNOL carrybacks and carryforwards to the tax year attributable to qualified Gulf Opportunity Zone losses,
or
-
AMTI for the tax year (figured without regard to the ATNOLD and any domestic production activities deduction, as discussed
earlier) reduced
by the amount determined under (1), above.
Enter on line 27 the smaller of the ATNOLD or the ATNOLD limitation.
Any ATNOL not used may be carried back 2 years or forward up to 20 years (15 years for loss years beginning before 1998).
In some cases, the
carryback period is longer than 2 years; see section 172(b) and 1400N(k) for details.
The treatment of ATNOLs does not affect your regular tax NOL.
If you elected under section 172(b)(3) to forego the carryback period for regular tax purposes, the election will also apply
for the AMT.
Line 29—Estate's or Trust's Share of Alternative Minimum Taxable Income
For an estate or trust that held a residual interest in a REMIC, line 29 may not be less than the estate's or trust's share
of the amount on
Schedule E (Form 1040), line 38, column (c). If that amount is larger than the amount you would otherwise enter on line 29,
enter that amount instead
and write “Sch. Q” on the dotted line next to line 29.
Part II—Income Distribution Deduction on a Minimum Tax Basis
Line 30—Adjusted Alternative Minimum Taxable Income
Generally, enter on line 30, Schedule I, the amount from line 25, Schedule I. However, if both line 4 on page 1 and line 25,
Schedule I, are
losses, enter on line 30, Schedule I, the smaller of those losses. If line 4 is zero or a gain and line 25 is a loss, enter
zero on line 30,
Schedule I.
Line 31—Adjusted Tax-Exempt Interest
To figure the adjusted tax-exempt interest (including exempt-interest dividends received as a shareholder in a mutual fund
or other regulated
investment company), subtract the total of any:
-
Tax-exempt interest from line 2 of Schedule A of Form 1041 figured for AMT purposes, and
-
Section 212 expenses allowable for AMT purposes allocable to tax-exempt interest, from the amount of tax-exempt interest
received.
Do not subtract any deductions reported on lines 2 through 4.
Section 212 expenses that are directly allocable to tax-exempt interest are allocated only to tax-exempt interest. A reasonable
proportion of
section 212 expenses that are indirectly allocable to both tax-exempt interest and other income must be allocated to each
class of income.
Reduce the amount on line 33 by any allocable section 1202 exclusion (as refigured for AMT purposes).
Enter any capital gains that were paid or permanently set aside for charitable purposes from the current year's income included
on line 1 of
Schedule A. Reduce the amount on line 34 by any allocable section 1202 exclusion (as refigured for AMT purposes).
Capital gains and losses must take into account any basis adjustments from line 13, Part I.
Line 41—Adjustment for Tax-Exempt Income
In figuring the income distribution deduction on a minimum tax basis, the estate or trust is not allowed a deduction for any
item of DNAMTI (line
37) that is not included in the gross income of the estate or trust figured on an AMT basis. Thus, for purposes of figuring
the allowable income
distribution deduction on a minimum tax basis, the DNAMTI is figured without regard to any tax-exempt interest (except for
amounts from line 8).
If tax-exempt interest is the only tax-exempt income included in the total distributions (line 40), and the DNAMTI (line 37)
is less than or equal
to line 40, then enter on line 41 the amount from
line 31.
If tax-exempt interest is the only tax-exempt income included in the total distributions (line 40), and the DNAMTI is more
than line 40 (that is,
the estate or trust made a distribution that is less than the DNAMTI), then figure the adjustment by multiplying line 31 by
a fraction, the numerator
of which is the total distributions (line 40), and the denominator of which is the DNAMTI (line 37). Enter the result on line
41.
If line 40 includes tax-exempt income other than tax-exempt interest (except for amounts from line 8), figure line 41 by subtracting
the total
expenses allocable to tax-exempt income that are allowable for AMT purposes from tax-exempt income included on line 40.
Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion
of expenses indirectly
allocable to both tax-exempt income and other income must be allocated to each class of income.
Line 44—Income Distribution Deduction on a Minimum Tax Basis
Allocate the income distribution deduction figured on a minimum tax basis among the beneficiaries in the same manner as income
was allocated for
regular tax purposes. You need the allocated income distribution deduction figured on a minimum tax basis to figure the beneficiary's
adjustment for
minimum tax purposes, as explained under the instructions for box 12, code A on
page 43.
Part III—Alternative Minimum Tax Computation
Line 53—Alternative Minimum Foreign Tax Credit
To see if you need to figure the estate's or trust's AMT foreign tax credit, fill in line 55 of Schedule I as instructed.
If the amount on line 55
is greater than or equal to the amount on line 52, the estate or trust does not owe the AMT. Enter zero on line 56 and see
Who Must Complete on page
26 to find out if you must file Schedule I with Form 1041. However, even if the estate or trust does not owe AMT, you may
need to complete line 53 to
see if you have an AMT foreign tax credit carryback or carryforward to other tax years.
To figure the AMT foreign tax credit, follow the steps discussed below.
Step 1.
Complete and attach a separate AMT Form 1116, with the notation at the top, “ Alt Min Tax” for each separate limitation category specified at
the top of Form 1116.
Note.
When applying the separate limitation categories, use the applicable AMT rate instead of the regular tax rate to determine
if any income is
“ high-taxed.”
Step 2.
If you (on behalf of the estate or trust) previously made or are making the Simplified limitation election (see page 32), skip Part I
and enter on the AMT Form 1116, line 16, the same amount you entered on that line for the regular tax. If you did not complete
Form 1116 for the
regular tax and you previously made or are making the simplified limitation election (on behalf of the estate or trust), complete
Part I and lines 14
through 16 of the AMT Form 1116 using regular tax amounts.
If the election does not apply, complete Part I, using only income and deductions allowed for the AMT that are attributable
to sources outside the
United States. If the estate or trust has any foreign source qualified dividends or foreign source capital gains or losses,
use the instructions under
Step 3 to determine whether you must make adjustments to those amounts before you include the amounts on line 1 or line 5
of the AMT Form 1116.
Step 3.
Follow the instructions later, if applicable, to determine the amount of foreign source qualified dividends and foreign
source capital gains and
losses to include on line 1 and line 5 of the AMT Form 1116.
Foreign qualified dividends.
You must adjust the estate's or trust's foreign source qualified dividends before you include those amounts on line
1 of the AMT Form 1116 if:
-
Schedule I, line 62 is greater than zero,
-
Schedule I, line 74 is smaller than Schedule I, line 75, and
-
The Exception for foreign qualified dividends below does not apply.
To adjust foreign source qualified dividends, multiply the estate's or trust's foreign source qualified dividends
in each separate category by
0.5357. Include the results on line 1 of the AMT Form 1116.
Note. Use the estate's or trust's capital gains and losses as refigured for the AMT to determine whether your total
amounts are less than the
$20,000 threshold under the adjustment exception.
Do not adjust the amount of any foreign source qualified dividends you elected to include on line 4g of the AMT Form 4952.
Exception for foreign qualified dividends.
You do not need to make any adjustments if both of the following apply.
-
The estate or trust qualifies for the Adjustment exception discussed under Qualified Dividends Tax Worksheet (Estates and
Trusts) or the Adjustments to foreign qualified dividends discussed under Schedule D Filers (both discussions are in the
Instructions for Form 1116) when you completed a Form 1116 for the regular tax (or you would have qualified for that adjustment
exception if you had
completed a Form 1116 for the regular tax), and
-
Schedule I, line 62 is $175,000 or less.
Foreign capital gains or losses.
If any capital gain or loss from U.S. or foreign sources is different for the AMT, use the refigured amounts to complete
this step.
To figure the adjustment for the estate's or trust's foreign source capital gains or losses, you must first determine
whether you can use
Worksheet A or Worksheet B in the Instructions for Form 1116. Otherwise, you must use the instructions for Capital Gains
and Losses in Pub. 514 to figure the adjustments you must make to the estate's or trust's foreign source capital gains and losses.
Use Worksheet A if the estate or trust has foreign source capital gains or losses in no more than two separate categories,
and any of the following
apply.
-
Schedule D line 14a, column (2) or line 15, column (2), as refigured for the AMT if necessary, is zero or a loss.
-
Schedule D line 18, as refigured for the AMT if necessary, minus the amount on Form 4952 line 4e that you elected to include
on Form 4952
line 4g is zero.
-
The amount on line 9 of the Schedule D Tax Worksheet, as refigured for the AMT if necessary, minus the amount on Form 4952,
line 4e that you
elected to include on Form 4952, line 4g, is zero or less.
-
You were not required to make adjustments to the estate's or trust's foreign source qualified dividends under the rules described
earlier
(or if the estate or trust had foreign source qualified dividends, you would not have been required to make those adjustments).
Use Worksheet B if you:
-
Cannot use Worksheet A,
-
Have foreign source capital gains and losses in no more than 2 separate categories, and
-
Did not have any item of unrecaptured section 1250 gain or any item of 28% rate gain or loss for either regular tax or AMT.
Instructions for Worksheets A and B.
When you complete Worksheet A or B, use foreign source capital gains and losses as refigured for the AMT, if necessary,
and do not use any foreign
source capital gains that you elected to include on line 4g of the AMT Form 4952. Use 0.5357 instead of 0.4286 to complete
lines 11, 13, and 15 of
Worksheet B and to complete Steps 4 and 5 of the Line 15 Worksheet for Worksheet B.
Step 4.
Complete Part II and lines 9 through 13 of the AMT Form 1116. Use the estate's or trust's AMT foreign tax credit carryover,
if any, on line 10.
Step 5.
If the simplified limitation election does not apply, complete lines 14 through 16 of the AMT Form 1116.
Step 6.
If you did not complete Part IV of Schedule I, enter the amount from Schedule I, line 29 on line 17 of the AMT Form
1116 and go to Step 7 later.
Complete an AMT Worksheet for Line 17 in the Instructions for Form 1116 to figure the amount to enter on Form 1116,
line 17 if:
-
Schedule I, line 62 is greater than zero,
-
Schedule I, line 74 is smaller than Schedule I, line 75, and
-
The Exception for the line 17 worksheet below does not apply.
If you do not have to complete an AMT Worksheet for Line 17, enter the amount from Schedule I, line 29 on line 17 of the AMT
Form 1116.
Exception for the line 17 worksheet.
You do not have to complete an AMT Worksheet for Line 17 in the Instructions for Form 1116 if:
-
The estate or trust qualifies for the Adjustment exception discussed under Qualified Dividends Tax Worksheet (Estates and
Trusts) or the Adjustments to foreign qualified dividends discussed under Schedule D Filers (both discussions are in the
Instructions for Form 1116) when you completed a Form 1116 for the regular tax (or you would have qualified for that adjustment
exception if you had
completed a Form 1116 for the regular tax), and
-
Schedule I, line 62 is $175,000 or less.
Note. Use the estate's or trust's capital gains and losses as refigured for the AMT to determine whether your total
amounts are less than the
$20,000 threshold under the adjustment exception.
Instructions for completing an AMT Worksheet for Line 17.
To complete an AMT Worksheet for Line 17 in the Instructions for Form 1116, follow these instructions.
-
Enter the amount from Schedule I, line 29 on line 1 of the worksheet.
-
Skip lines 2 and 3 of the worksheet.
-
Enter the amount from Schedule I, line 72 on line 4 of the worksheet.
-
Multiply line 4 of the worksheet by 0.1071 (instead of 0.2857) and enter the results on line 5 of the worksheet.
-
Enter the amount from Schedule I, line 70 on line 6 of the worksheet.
-
Multiply line 6 of the worksheet by 0.4643 (instead of 0.5714 and enter the result on line 7 of the worksheet.
-
Complete lines 8 and 9 of the worksheet as instructed on the worksheet.
Step 7.
Enter the amount from Schedule I, line 52, on the AMT Form 1116, line 19. Complete lines 18, 20, and 21 of the AMT
Form 1116.
Step 8.
Complete Part IV of the first AMT Form 1116 only.
Enter on line 53 of Schedule I of Form 1041 the amount from line 33 of the first AMT Form 1116.
Attach to the estate's or trust's return, all AMT Forms 1116 you used to figure your AMTFTC.
AMT foreign tax credit carryback and carryforward.
If the AMT foreign tax credit is limited, any unused amount can be carried back or forward in accordance with sections
59(a)(2)(B) and 904(c). The
election to forego the carryback period for regular tax purposes also applies for the AMT.
Simplified limitation election.
The estate or trust may elect to use a simplified section 904 limitation to figure its AMT foreign tax credit. To
do so, use the estate's or
trust's regular tax income for Form 1116, Part I, instead of refiguring the estate's or trust's foreign source income for
the AMT, as described in
Step 2 on page 31. The estate or trust must make the election for the first tax year after 1997 for which it claims an alternative
minimum tax foreign
tax credit. If it does not make the election for that year, it may not make it for a later year. Once made, the election applies
to all later tax
years and may be revoked only with IRS consent.
Part IV—Line 52 Computation Using Maximum Capital Gains Rates
If you used Schedule D, the Schedule D Tax Worksheet, or the Qualified Dividend Tax Worksheet, you generally may enter the
amounts as instructed on
Schedule I, lines 58, 59, and 60. But do not use those amounts if either of the following applies.
-
Any gain or loss on Schedule D is different for the AMT (for example, because the AMT basis was different due to depreciation
adjustments or
an incentive stock option adjustment or the AMT capital loss carryover from 2005 was different).
-
You did not complete Part V of Schedule D, the Schedule D Tax Worksheet, or the Qualified Dividends Tax Worksheet because
Form 1041, line
22, was zero or less.
-
The estate or trust received a Schedule K-1 (Form 1041) that shows an amount in box 12 with code B, C, D, E, or F. If this
applies, see
If the estate or trust is a beneficiary of another estate or trust.
If 1 or 3 above applies, complete Parts I through IV of an AMT Schedule D by refiguring the amounts of your gains and losses
for the AMT. Next, if
1, 2, or 3 above applies, complete the following lines of the applicable schedule or worksheet:
-
Lines 18 through 22 of an AMT Schedule D,
-
Lines 2 through 13 of an AMT Schedule D Tax Worksheet, or
-
Lines 2 through 4 of a Qualified Dividends Tax Worksheet.
If you were required to complete an AMT Form 4952, use it to figure the amount to enter on line 21 of the AMT Schedule D,
lines 3 and 4 of the
AMT Schedule D Tax Worksheet, and line 3 of the Qualified Dividends Tax Worksheet. Use amounts from the AMT Schedule D, AMT
Schedule D Tax Worksheet,
or Qualified Dividends Tax Worksheet to complete Schedule I, lines 58, 59, and 60. Keep the AMT Schedule D and worksheet for
your records. Do not
attach the AMT Schedule D to Form 1041.
Do not decrease the estate's or trust's section 1202 exclusion by the amount, if any, included on line 9.
If the estate or trust is a beneficiary of another estate or trust.
If the estate or trust received a Schedule K-1 (Form 1041) from another estate or trust that shows an amount in box
12 with code B, C, D, E, or F,
follow the instructions in the table below.
Schedule D (Form 1041)— Capital Gains and Losses
-
If the estate or trust sold or exchanged a qualified community asset held for more than 5 years, it may be able to exclude
any qualified
capital gain. See Pub. 954.
-
The trust can elect to treat musical compositions and copyrights in musical works as capital assets if it sold or exchanged
them in a tax
year beginning after May 17, 2006, and acquired the assets under circumstances entitling it to the basis of the person who
created the property or for
whom it was prepared or produced.
Use Schedule D (Form 1041) to report gains and losses from the sale or exchange of capital assets by an estate or trust.
To report the sale or exchange of property used in a trade or business, involuntary conversions (other than casualties and
thefts), and certain
ordinary gains and losses, see Form 4797 and related instructions.
If property is involuntarily converted because of a casualty or theft, use Form 4684.
Section 1256 contracts and straddles are reported on Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.
Each item of property held by the estate or trust (whether or not connected with its trade or business) is a capital asset
except the following.
-
Inventoriable assets or property held primarily for sale to customers.
-
Depreciable or real property used in a trade or business, even if it is fully depreciated.
-
Copyrights, literary, musical or artistic compositions, letters or memoranda, or similar property (a) prepared or produced
for the estate or
trust (in the case of letters, memoranda, or similar property); or (b) that the trust received from someone who created them
or for whom they were
created in a way (such as by gift) that entitled the trust to the basis of the previous owner. However, the trust can elect
to treat musical
compositions and copyrights in musical works as capital assets if it sold or exchanged them in a tax year beginning after
May 17, 2006, and acquired
the assets under circumstances entitling it to the basis of the person who created the property or for whom it was prepared
or produced.
-
Accounts or notes receivable acquired in the ordinary course of a trade or business for services rendered or from the sale
of inventoriable
assets or property held primarily for sale to customers.
-
Certain U.S. Government publications not purchased at the public sale price.
-
Certain “commodities derivative financial instruments” held by a dealer (see section 1221(a)(6)).
-
Certain hedging transactions entered into in the normal course of a trade or business (see section 1221(a)(7)).
-
Supplies regularly used in a trade or business.
You may find additional helpful information in the following publications.
-
Pub. 544, Sales and Other Dispositions of Assets.
-
Pub. 551, Basis of Assets.
Separate the capital gains and losses according to how long the estate or trust held or owned the property. The holding period
for short-term
capital gains and losses is 1 year or less. The holding period for long-term capital gains and losses is more than 1 year.
Property acquired from a
decedent is considered as held for more than 1 year.
When you figure the length of the period the estate or trust held property, begin counting on the day after the estate or
trust acquired the
property and include the day the estate or trust disposed of it. Use the trade dates for the date of acquisition and sale
of stocks and bonds traded
on an exchange or over-the- counter market.
Section 643(e)(3) Election
For noncash property distributions, a fiduciary may elect to have the estate or trust recognize gain or loss in the same manner
as if the
distributed property had been sold to the beneficiary at its FMV. The distribution deduction is the property's FMV. This election
applies to all
distributions made by the estate or trust during the tax year and, once made, may be revoked only with IRS consent.
Note that section 267 does not allow a trust or a decedent's estate to claim a deduction for any loss on property to which
a section 643(e)(3)
election applies. In addition, when a trust or a decedent's estate distributes depreciable property, section 1239 applies
to deny capital gains
treatment for any gain on property to which a section 643(e)(3) election applies.
A trust cannot deduct a loss from the sale or exchange of property directly or indirectly between any of the following:
-
A grantor and a fiduciary of a trust,
-
A fiduciary and a fiduciary or beneficiary of another trust created by the same grantor,
-
A fiduciary and a beneficiary of the same trust,
-
A trust fiduciary and a corporation of which more than 50% in value of the outstanding stock is owned directly or indirectly
by or for the
trust or by or for the grantor of the trust, or
-
An executor of an estate and a beneficiary of that estate, except when the sale or exchange is to satisfy a pecuniary bequest
(that is, a
bequest of a sum of money).
Items for Special Treatment
-
Bonds and other debt instruments. See Pub. 550.
-
Wash sales of stock or securities (including contracts or options to acquire or sell stock or securities) (section 1091).
-
Gain or loss on options to buy or sell. See Pub. 550.
-
Certain real estate subdivided for sale that may be considered a capital asset (section 1237).
-
Gain on disposition of stock in an interest charge domestic international sales corporation (section 995(c)).
-
Gain on the sale or exchange of stock in certain foreign corporations (section 1248).
-
Sales of stock received under a qualified public utility dividend reinvestment plan. See Pub. 550 for details.
-
Transfer of appreciated property to a political organization (section 84).
-
Amounts received by shareholders in corporate liquidations. See Pub. 550.
-
Cash received in lieu of fractional shares of stock as a result of a stock split or stock dividend. See Pub. 550.
-
Mutual fund load charges, which may not be taken into account in determining gain or loss on certain dispositions of stock
in mutual funds
if reinvestment rights were exercised. See Pub. 564.
-
The sale or exchange of S corporation stock or an interest in a trust held for more than 1 year, which may result in collectibles
gain (28%
rate gain). See the instructions for line 14c beginning on page 37.
-
Gain or loss on the disposition of securities futures contracts. See Pub. 550.
-
Gains from certain constructive ownership transactions. Gain in excess of the gain the estate or trust would have recognized
if the estate
or trust had held a financial asset directly during the term of a derivative contract must be treated as ordinary income.
See section 1260 for
details.
-
The sale of qualified empowerment zone assets acquired after December 21, 2000, that the estate or trust held for more than
1 year, if you
elect to postpone gain by purchasing other qualified empowerment zone assets during the 60-day period that began on the date
of the sale. See Pub. 550
and Pub. 954.
-
If the estate or trust sold or exchanged a District of Columbia Enterprise Zone (DC Zone) asset that it held for more than
5 years, it can
exclude the amount of “qualified capital gain” from gross income. See Pub. 954.
-
If the estate or trust sold or exchanged a qualified community asset held for more than 5 years, it can exclude the amount
of any qualified
capital gain from gross income. This exclusion applies to an interest in, or property of, certain businesses operating in
a renewal community. See
Pub. 954.
-
If qualified dividends include extraordinary dividends, any loss on the sale or exchange of the stock is a long-term capital
loss to the
extent of the extraordinary dividends. An extraordinary dividend is a dividend that is at least 10% (5% in the case of preferred
stock) of the basis
in the stock.
-
The sale of publicly traded securities, if the estate or trust elects to postpone gain by purchasing common stock or a partnership
interest
in a specialized small business investment company during the 60-day period that began on the date of the sale. See Pub. 550.
Constructive Sales Treatment for Certain Appreciated Positions
Generally, the estate or trust must recognize gain (but not loss) on the date it enters into a constructive sale of any appreciated
position in
stock, a partnership interest, or certain debt instruments as if the position were disposed of at FMV on that date.
The estate or trust is treated as making a constructive sale of an appreciated position when it (or a related person, in some
cases) does one of
the following:
-
Enters into a short sale of the same or substantially identical property (that is, a “short sale against the box”),
-
Enters into an offsetting notional principal contract relating to the same or substantially identical property,
-
Enters into a futures or forward contract to deliver the same or substantially identical property, or
-
Acquires the same or substantially identical property (if the appreciated position is a short sale, offsetting notional principal
contract,
or a futures or forward contract).
Exception. Generally, constructive sale treatment does not apply if:
-
The estate or trust closed the transaction before the end of the 30th day after the end of the year in which it was entered
into,
-
The estate or trust held the appreciated position to which the transaction relates throughout the 60-day period starting on
the date the
transaction was closed, and
-
At no time during that 60-day period was the estate's or trust's risk of loss reduced by holding certain other positions.
For details and other exceptions to these rules, see Pub. 550.
Exclusion of Gain on Qualified Small Business Stock (Section 1202)
Section 1202 provides for an exclusion of 50% of the gain on the sale or exchange of qualified small business (QSB) stock.
The section 1202
exclusion applies only to qualified small business stock held for more than 5 years. To be qualified small business stock,
the stock must meet all of
the following tests.
-
It must be stock in a C corporation (that is, not S corporation stock).
-
It must have been originally issued after August 10, 1993.
-
As of the date the stock was issued, the corporation was a qualified small business. A qualified small business is a domestic
C corporation
with total gross assets of $50 million or less (a) at all times after August 9, 1993, and before the stock was issued, and
(b) immediately after the
stock was issued. Gross assets include those of any predecessor of the corporation. All corporations that are members of the
same parent-subsidiary
controlled group are treated as one corporation.
-
The estate or trust acquired the stock at its original issue (either directly or through an underwriter), either in exchange
for money or
other property or as pay for services (other than as an underwriter) to the corporation. In certain cases, the estate or trust
may meet the test if it
acquired the stock from another person who met this test (such as by gift or at death) or through a conversion or exchange
of qualified small business
stock the estate or trust held.
-
During substantially all the time the estate or trust held the stock:
-
The corporation was a C corporation,
-
At least 80% of the value of the corporation's assets were used in the active conduct of one or more qualified businesses
(defined below),
and
-
The corporation was not a foreign corporation, DISC, former DISC, corporation that has made (or that has a subsidiary that
has made) a
section 936 election, regulated investment company, real estate investment trust, REMIC, FASIT, or cooperative.
Note.
A specialized small business investment company (SSBIC) is treated as having met test 2 above.
Qualified business.
A qualified business is any business other than the following:
-
One involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing
arts,
consulting, athletics, financial services, or brokerage services;
-
One whose principal asset is the reputation or skill of one or more employees;
-
Any banking, insurance, financing, leasing, investing, or similar business;
-
Any farming business (including the raising or harvesting of trees);
-
Any business involving the production of products for which percentage depletion can be claimed; or
-
Any business of operating a hotel, motel, restaurant, or similar business.
For more details about limits and additional requirements that may apply, see section 1202.
Empowerment zone business stock.
Generally, the estate or trust can exclude up to 60% of its gain on certain qualified small business stock if it meets
the following additional
requirements.
-
The stock sold or exchanged was stock in a corporation that qualified as an empowerment zone business during substantially
all of the time
the estate or trust held the stock.
-
The estate or trust acquired the stock after December 21, 2000.
Requirement 1 will still be met if the corporation ceased to qualify after the 5-year period that began on the date
the estate or trust acquired
the stock. However, the gain that qualifies for the 60% exclusion cannot be more than the gain the estate or trust would have
had if it had sold the
stock on the date the corporation ceased to qualify.
For more information about empowerment zone businesses, see Pub. 954.
Pass-through entities.
If the estate or trust held an interest in a pass-through entity (a partnership, S corporation, mutual fund, or other
regulated investment company)
that sold qualified small business stock, the estate or trust generally must have held the interest on the date the pass-through
entity acquired the
qualified small business stock and at all times thereafter until the stock was sold to qualify for the exclusion.
How to report.
Report in column (f) of line 6 the entire gain realized on the sale of qualified small business stock. Complete all
other columns as indicated.
Directly below the line on which you reported the gain, enter in column (a) “ Section 1202 exclusion,” and enter as a (loss) in column (f) the
amount of the allowable exclusion. On line 2 of the 28% Rate Gain Worksheet, include an amount equal to the 50% exclusion (⅔
of the exclusion if you claimed a 60% exclusion). Also, see the instructions for Schedule I, line 9, for information on the
amount of the exclusion to
include on Schedule I.
Gain from Form 1099-DIV.
If the estate or trust received a Form 1099-DIV with a gain in box 2c, part or all of that gain (which is also included
in box 2a) may be eligible
for the section 1202 exclusion. In column (a) of line 6, enter the name of the corporation whose stock was sold. In column
(f), enter the amount of
the allowable exclusion as a (loss). Also, include the amount of the 50% exclusion as a gain on line 2 of the 28% Rate Gain Worksheet
(include ⅔ of the exclusion if you claimed a 60% exclusion).
Gain from Form 2439.
If the estate or trust received a Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, with
a gain in box 1c, part or all of
that gain (which is also included in box 1a) may be eligible for the section 1202 exclusion. In column (a) of line 6, enter
the name of the
corporation whose stock was sold. In column (f), enter the amount of the allowable exclusion as a (loss). Also, include the
amount of the 50%
exclusion as a gain on line 2 of the 28% Rate Gain Worksheet (include ⅔ of the exclusion if you claimed a 60% exclusion).
Gain from an installment sale of QSB stock.
If all payments are not received in the year of sale, a sale of QSB stock that is not traded on an established securities
market generally is
treated as an installment sale and is reported on Form 6252. Part or all of any gain from the sale that is reported on Form
6252 for the current year
may be eligible for the section 1202 exclusion. In column (a) of line 6, enter the name of the corporation whose stock was
sold. In column (f), enter
the amount of your allowable exclusion as a loss. Also, include the amount of the 50% exclusion as a gain on line 2 of the
28% Rate Gain
Worksheet (include ⅔ of the exclusion if you claimed a 60% exclusion).
Rollover of gain from qualified small business stock.
If the estate or trust held qualified small business stock (as defined above) for more than 6 months, it may elect
to postpone gain if it purchased
other qualified small business stock during the 60-day period that began on the date of the sale.
The estate or trust must recognize gain to the extent the sale proceeds exceed the cost of the replacement stock.
Reduce the basis of the
replacement stock by any postponed gain.
The estate or trust must make the election no later than the due date (including extensions) for filing Form 1041
for the tax year in which the
stock was sold. If the original Form 1041 was filed on time, the election may be made on an amended return filed no later
than 6 months after the due
date of the original return (excluding extensions). Write “ Filed pursuant to section 301.9100-2” at the top of the amended return, and file it at
the same address used for the original Form 1041.
To make the election, report the entire gain realized on the sale on line 1 or 6. Directly below the line on which
you reported the gain, enter in
column (a) “ Section 1045 Rollover” and enter as a (loss) in column (f) the amount of the postponed gain.
Short-term and long-term capital gains and losses.
Enter all sales of stocks, bonds, etc.
Redemption of stock to pay death taxes.
If stock is redeemed under the provisions of section 303, list and identify it on line 6 and give the name of the
decedent and the IRS office where
the estate tax or generation-skipping transfer tax return was filed.
If you are reporting capital gain from a lump-sum distribution, see the instructions for Form 4972 for information
about the federal estate tax.
Enter either the gross sales price or the net sales price from the sale. On sales of stocks and bonds, report the gross amount
as reported to the
estate or trust on Form 1099-B or similar statement. However, if the estate or trust was advised that gross proceeds less
commissions and option
premiums were reported to the IRS, enter that net amount in column (d).
Column (e)—Cost or Other Basis
Basis of trust property.
Generally, the basis of property acquired by gift is the same as the basis in the hands of the donor. If the FMV of
the property at the time it was
transferred to the trust is less than the transferor's basis, then the FMV is used for determining any loss on disposition.
If the property was transferred to the trust after 1976, and a gift tax was paid under Chapter 12, then increase the
donor's basis as follows:
Multiply the amount of the gift tax paid by a fraction, the numerator of which is the net appreciation in value of
the gift (defined below), and
the denominator of which is the amount of the gift. For this purpose, the net appreciation in value of the gift is the amount
by which the FMV of the
gift exceeds the donor's adjusted basis.
Basis of decedent's estate property.
Generally, the basis of property acquired by a decedent's estate is the FMV of the property at the date of the decedent's
death, or the alternate
valuation date if the executor elected to use an alternate valuation under section 2032.
See Pub. 551 for a discussion of the valuation of qualified real property under section 2032A.
Basis of assets held on January 1, 2001, where an election to recognize gain was made.
If you elected on behalf of an estate or trust to recognize gain on an asset held on January 1, 2001, the basis in
the asset is its closing market
price or fair market value, whichever applies, on the date of the deemed sale and reacquisition, whether the deemed sale resulted
in a gain or an
unallowed loss.
Adjustments to basis.
Before figuring any gain or loss on the sale, exchange, or other disposition of property owned by the estate or trust,
adjustments to the
property's basis may be required.
Some items that may increase the basis include:
-
Broker's fees and commissions,
-
Reinvested dividends that were previously reported as income,
-
Reinvested capital gains that were previously reported as income,
-
Costs that were capitalized, and
-
Original issue discount that has been previously included in income.
Some items that may decrease the basis include:
-
Nontaxable distributions that consist of return of capital,
-
Deductions previously allowed or allowable for depreciation, and
-
Casualty or theft loss deductions.
See Pub. 551 for additional information.
See section 852(f) for treatment of load charges incurred in acquiring stock in a regulated investment company.
Carryover basis.
Carryover basis determined under repealed section 1023 applies to property acquired from a decedent who died after
December 31, 1976, and before
November 7, 1978, only if the executor elected it on a Form 5970-A, Election of Carryover Basis, that was filed on time.
Column (f)—Gain or (Loss)
Make a separate entry in this column for each transaction reported on lines 1 and 6 and any other lines that apply to the
estate or trust. For
lines 1 and 6, subtract the amount in column (e) from the amount in column (d). Enter negative amounts in parentheses.
Undistributed capital gains.
Include on line 7, column (f), the amount from box 1a of Form 2439. This represents the estate's or trust's share
of the undistributed long-term
capital gains of the regulated investment company (mutual fund) or real estate investment trust.
If there is an amount in box 1b of Form 2439, include that amount on line 11 of the Unrecaptured Section 1250 Gain Worksheet later if
you are required to complete line 14b, column (2) of Schedule D. If there is an amount in box 1c of Form 2439, see Exclusion of Gain on Qualified
Small Business Stock (Section 1202) on page 34. If there is an amount in box 1d of Form 2439, include that amount on line 4 of the 28% Rate
Gain Worksheet.
Enter on Form 1041, line 24g, the tax paid as shown in box 2 of Form 2439. Add to the basis of your stock the excess
of the amount included in
income over the amount of the credit for tax paid. See Pub. 550 for more details.
The instructions above assume the estate or trust is a cash basis calendar year taxpayer.
Installment sales.
If the estate or trust sold property (other than publicly traded stocks or securities) at a gain during the tax year
and will receive a payment in
a later tax year, you generally report the sale on the installment method and file Form 6252, Installment Sale Income, unless
you elect not to do so.
Also, use Form 6252 to report any payment received in 2006 from a sale made in an earlier tax year that was reported
on the installment method.
To elect
out of the installment method, report the full amount of the gain on a timely filed return
(including extensions). If the original return was filed on time, the election may be made on an amended return filed no later
than 6 months after the
due date of the original return (excluding extensions). Write “ Filed pursuant to section 301.9100-2” at the top of the amended return, and file
it at the same address used for the original
Form 1041.
Exchange of “like-kind” property.
Generally, no gain or loss is recognized when property held for productive use in a trade or business or for investment
is exchanged solely for
property of a like-kind to be held either for productive use in a trade or business or for investment. However, if a trust
exchanges like-kind
property with a related person (see Related Persons on page 33), and before 2 years after the date of the last transfer that was part of
the exchange the related person disposes of the property, or the trust disposes of the property received in exchange from
the related person, then the
original exchange will not qualify for nonrecognition. See section 1031(f) for exceptions.
Complete and attach Form 8824, Like-Kind Exchanges, to Form 1041 for each exchange.
Line 9—Capital Gain Distributions
Enter as a long-term capital gain on line 9, column (f), the total capital gain distributions paid during the year, regardless
of how long the
estate or trust held its investment. This amount is shown in box 2a of Form 1099-DIV. If there is an amount in box 2b, include
that amount on line 11
of the Unrecaptured Section 1250 Gain Worksheet later if you are required to complete the worksheet. If there is an amount in box 2c, see
Exclusion of Gain on Qualified Small Business Stock on page 34. If there is an amount in box 2d of Form 1099-DIV, include the amount on
line 4 of the 28% Rate Gain Worksheet.
The instructions above assume the estate or trust is a cash basis calendar year taxpayer.
Line 13, Column (1)—Beneficiaries' Net Short-Term Capital Gain or Loss
Enter the amount of net short-term capital gain or loss allocable to the beneficiary or beneficiaries. Include only those
short-term capital losses
that are taken into account in determining the amount of gain from the sale or exchange of capital assets that is paid, credited,
or required to be
distributed to any beneficiary during the tax year. See Regulations section 1.643(a)-3 for more information about allocation
of capital gains and
losses.
If the losses from the sale or exchange of capital assets are more than the gains, the net loss must be allocated to the estate
or trust and not to
the beneficiaries.
Line 13, Column (2)—Estate's or Trust's Net Short-Term Capital Gain or Loss
Enter the amount of the net short-term capital gain or loss allocable to the estate or trust. Include any capital gain paid
or permanently set
aside for a charitable purpose specified in section 642(c).
Line 13, Column (3)—Total
Enter the total of the amounts entered in columns (1) and (2). The amount in column (3) should be the same as the amount on
line 5.
Line 14a—Net Long-Term Capital Gain or Loss
Allocate the net long-term capital gain or loss on line 14a in the same manner as the net short-term capital gain or loss
on line 13. However, do
not take the section 1202 exclusion on gain from the sale or exchange of qualified small business stock into account when
figuring net long-term
capital gain or loss allocable to the beneficiaries.
Line 14b—Unrecaptured Section 1250 Gain
Complete the worksheet on page 35 if any of the following apply.
-
During the tax year, the estate or trust sold or otherwise disposed of section 1250 property (generally, real property that
was depreciated)
held more than 1 year.
-
The estate or trust received installment payments during the tax year for section 1250 property held more than 1 year for
which it is
reporting gain on the installment method.
-
The estate or trust received a Schedule K-1 from an estate or trust, partnership, or S corporation that shows “unrecaptured section 1250
gain” reportable for the tax year.
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The estate or trust received a Form 1099-DIV or Form 2439 from a real estate investment trust or regulated investment company
(including a
mutual fund) that reports “unrecaptured section 1250 gain” for the tax year.
-
The estate or trust reported a long-term capital gain from the sale or exchange of an interest in a partnership that owned
section 1250
property.
Unrecaptured Section 1250 Gain Worksheet—Line 14b
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If the estate or trust is not reporting a gain on Form 4797, line 7, skip lines 1 through
9 and go to line 10.
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1.
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If the estate or trust has a section 1250 property in Part III of Form 4797 for which you
made an entry in Part I of Form 4797 (but not on Form 6252), enter the smaller of line 22 or line 24 of Form 4797 for that property. If the
estate or trust did not have any such property, go to line 4. If it had more than one such property, see instructions
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1.
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2.
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Enter the amount from Form 4797, line 26g, for the property for which you made an entry on
line 1
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2.
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3.
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Subtract line 2 from line 1
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3.
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4.
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Enter the total unrecaptured section 1250 gain included on line 26 or line 37 of Form(s) 6252
from installment sales of trade or business property held more than 1 year (see instructions)
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4.
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5.
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Enter the total of any amounts reported to the estate or trust on a Schedule K-1 from a
partnership or an S corporation as “unrecaptured section 1250 gain”
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5.
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6.
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Add lines 3 through 5
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6.
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7.
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Enter the smaller of line 6 or the gain from Form 4797, line 7
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7.
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8.
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Enter the amount, if any, from Form 4797, line 8
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8.
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9.
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Subtract line 8 from line 7. If zero or less, enter -0-
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9.
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10.
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Enter the amount of any gain from the sale or exchange of an interest in a partnership
attributable to unrecaptured section 1250 gain (see instructions)
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10.
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11.
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Enter the total of any amounts reported to the estate or trust on a Schedule K-1, Form
1099-DIV, or Form 2439 as “unrecaptured section 1250 gain” from an estate, trust, real estate investment trust, or mutual fund (or other
regulated investment company)
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11.
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12.
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Enter the total of any unrecaptured section 1250 gain from sales (including installment
sales) or other dispositions of section 1250 property held more than 1 year for which you did not make an entry in Part I
of Form 4797 for the year of
sale (see instructions)
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12.
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13.
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Add lines 9 through 12
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13.
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14.
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If the estate or trust had any section 1202 gain or collectibles gain or (loss), enter the total of lines 1 through 4 of
the 28% Rate Gain Worksheet on page 37. Otherwise, enter -0-
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14.
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15.
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Enter the (loss), if any, from Schedule D, line 5. If Schedule D, line 5, is zero or a gain, enter -0-
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15.
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()
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16.
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Enter the estate's or trust's long-term capital loss carryovers from Schedule D, line 11, and from Schedule K-1 (Form
1041), box 11, code C, from another estate or trust
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16.
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()
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17.
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Combine lines 14 through 16. If the result is a (loss), enter it as a positive amount. If the
result is zero or a gain, enter -0-
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17.
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18.
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Unrecaptured section 1250 gain. Subtract line 17 from line 13. If zero or less,
enter -0-. Enter the result here and in the appropriate columns of Schedule D, line 14b
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18.
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Instructions for the Unrecaptured Section 1250 Gain Worksheet
Lines 1 through 3.
If the estate or trust had more than one property described on line 1, complete lines 1 through 3 for each property
on a separate worksheet. Enter
the total of the line 3 amounts for all properties on line 3 and go to line 4.
Line 4.
To figure the amount to enter on line 4, follow the steps below for each installment sale of trade or business property
held more than 1 year.
Step 1.
Figure the smaller of (a) the depreciation allowed or allowable or (b) the total gain for the sale. This is the smaller
of line 22 or line 24 of
the 2006 Form 4797 (or the comparable lines of Form 4797 for the year of sale) for that property.
Step 2.
Reduce the amount figured in step 1 by any section 1250 ordinary income recapture for the sale. This is the amount
from line 26g of the 2006 Form
4797 (or the comparable line of Form 4797 for the year of sale) for that property. The result is the total unrecaptured section
1250 gain that must be
allocated to the installment payments received from the sale.
Step 3.
Generally, the amount of section 1231 gain on each installment payment is treated as unrecaptured section 1250 gain
until the total unrecaptured
section 1250 gain figured in step 2 has been used in full. Figure the amount of gain treated as unrecaptured section 1250
gain for installment
payments received during the tax year, as the smaller of (a) the amount from line 26 or line 37 of the 2006 Form 6252, whichever
applies, or (b) the
amount of unrecaptured section 1250 gain remaining to be reported. This amount is generally the total unrecaptured section
1250 gain for the sale
reduced by all gain reported in prior years (excluding section 1250 ordinary income recapture). However, if you chose not
to treat all of the gain
from payments received after May 6, 1997, and before August 24, 1999, as unrecaptured section 1250 gain, use only the amount
you chose to treat as
unrecaptured section 1250 gain for those payments to reduce the total unrecaptured section 1250 gain remaining to be reported
for the sale. Include
this amount on line 4.
Line 10.
Include on line 10 the estate's or trust's share of the partnership's unrecaptured section 1250 gain that would result
if the partnership had
transferred all of its section 1250 property in a fully taxable transaction immediately before the estate or trust sold or
exchanged its interest in
that partnership. If the estate or trust recognized less than all of the realized gain, the partnership will be treated as
having transferred only a
proportionate amount of each section 1250 property.
Line 12.
An example of an amount to include on line 12 is unrecaptured section 1250 gain from the sale of a vacation home previously
used as a rental
property but converted to personal use prior to the sale. To figure the amount to enter on line 12, follow the applicable
instructions below.
Installment sales.
To figure the amount to include on line 12, follow the steps below for each installment sale of property held more
than 1 year for which you did
not make an entry in Part I of Form 4797 for the year of sale.
Step 1.
Figure the smaller of (a) the depreciation allowed or allowable or (b) the total gain for the sale. This is the smaller
of line 22 or line 24 of
the 2006 Form 4797 (or comparable lines of Form 4797 for the year of sale) for that property.
Step 2.
Reduce the amount figured in step 1 by any section 1250 ordinary income recapture for the sale. This is the amount
from line 26g of the 2006 Form
4797 (or the comparable line of Form 4797 for the year of sale) for that property. The result is the total unrecaptured section
1250 gain that must be
allocated to the installment payments received from the sale
Step 3.
Generally, the amount of capital gain on each installment payment is treated as unrecaptured section 1250 gain until
the total unrecaptured section
1250 gain figured in step 2 has been used in full. Figure the amount of gain treated as unrecaptured section 1250 gain for
installment payments
received during the tax year, as the smaller of (a) the amount from line 26 or line 37 of the 2006 Form 6252, whichever applies,
or (b) the amount of
unrecaptured section 1250 gain remaining to be reported. This amount is generally the total unrecaptured section 1250 gain
for the sale reduced by all
gain reported in prior years (excluding section 1250 ordinary income recapture). However, if you chose not to treat all of
the gain from payments
received after May 6, 1997, and before August 24, 1999, as unrecaptured section 1250 gain, use only the amount you chose to
treat as unrecaptured
section 1250 gain for those payments to reduce the total unrecaptured section 1250 gain remaining to be reported for the sale.
Include this amount on
line 12
Other sales or dispositions of section 1250 property.
For each sale of property held more than 1 year (for which an entry was not made in Part I of Form 4797), figure the
smaller of (a) the
depreciation allowed or allowable or (b) the total gain for the sale. This is the smaller of line 22 or line 24 of Form 4797
for that property. Next,
reduce that amount by any section 1250 ordinary income recapture for the sale. This is the amount from line 26g of Form 4797
for that property. The
result is the total unrecaptured section 1250 gain for the sale. Include this amount on line 12.
28% Rate Gain Worksheet—Line 14c
1.
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Enter the total of all collectibles gain or (loss) from items reported on line 6,
column (f), of Schedule D
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1.
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2.
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Enter as a positive number the amount of any section 1202 exclusion reported on line
6, column (f), of Schedule D, for which you excluded 50% of the gain, plus ⅔ of any section 1202 exclusion reported on line
6, column
(f), for which you excluded 60% of the gain
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2.
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3.
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Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only
if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824
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3.
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4.
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Enter the total of any collectibles gain reported to the estate or trust on:
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4.
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5.
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Enter the estate's or trust's long-term capital loss carryovers from Schedule D, line
11, and from box 11, code C of Schedule K-1 (Form 1041) from another estate or trust
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5.
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()
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6.
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If Schedule D, line 5, is a (loss), enter that (loss) here. Otherwise, enter
-0-
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6.
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()
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7.
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Combine lines 1 through 6. If zero or less, enter -0-. If more than zero, also enter
this amount in the appropriate columns of Schedule D, line 14c
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7.
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Complete the 28% Rate Gain Worksheet if lines 14a and 15 for column (3) are both greater than zero and at least one of the following
apply:
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The estate or trust reports in Part II, column (f), a section 1202 exclusion from the eligible gain on qualified small business
stock (see
page 34), or
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The estate or trust reports in Part II, column (f), a collectibles gain or (loss).
A collectibles gain or loss is any long-term gain or deductible long-term loss from the sale or exchange of a collectible
that is a capital asset.
Collectibles
includes works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins,
alcoholic beverages, and certain other tangible property.
Also include gain (but not loss) from the sale or exchange of an interest in a partnership, S corporation, or trust held for
more than 1 year and
attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement
required under
Regulations section 1.1(h)-1(e).
Capital Loss Carryover Worksheet Keep for Records
Use this worksheet to figure the estate's or trust's capital loss carryovers
from 2006 to 2007 if Schedule D, line 16, is a loss and (a) the loss on Schedule D, line 15, col. (3), is more than $3,000
or (b) Form
1041, page 1, line 22, is a loss.
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1.
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Enter taxable income or (loss) from Form 1041, line 22
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1.
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2.
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Enter the loss from line 16 of Schedule D as a positive amount
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2.
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3.
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Enter amount from Form 1041, line 20
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3.
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4.
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Adjusted taxable income. Combine lines 1, 2, and 3. If zero or less, enter
-0-
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4.
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5.
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Enter the smaller of line 2 or line 4
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5.
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Note: If line 5 of Schedule D is a loss, go to line 6; otherwise,
enter -0- on line 6 and go to line 10. |
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6.
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Enter loss from Schedule D, line 5, as a positive amount
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6.
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7.
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Enter gain, if any, from Schedule D, line 12. If that line is blank or shows a loss,
enter -0-
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7.
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8.
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Add lines 5 and 7
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8.
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9.
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Short-term capital loss carryover to 2007. Subtract line 8 from line 6. If
zero or less, enter -0-. If this is the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), box 11,
using code B
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9.
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Note: If line 12 of Schedule D is a loss, go to line 10; otherwise,
skip lines 10 through 14. |
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10.
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Enter loss from Schedule D, line 12, as a positive amount
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10.
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11.
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Enter gain, if any, from Schedule D, line 5. If that line is blank or shows a loss,
enter -0-
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11.
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12.
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Subtract line 6 from line 5. If zero or less, enter -0-
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12.
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13.
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Add lines 11 and 12
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13.
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14.
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Long-term capital loss carryover to 2007. Subtract line 13 from line 10.
If zero or less, enter -0-. If this is the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), box
11, using code C
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14.
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Part IV—Capital Loss Limitation
If the sum of all the capital losses is more than the sum of all the capital gains, then these capital losses are allowed
as a deduction only to
the extent of the smaller of the net loss or $3,000.
For any year (including the final year) in which capital losses exceed capital gains, the estate or trust may have a capital
loss carryover. Use
the Capital Loss Carryover Worksheet (above) to figure any capital loss carryover. A capital loss carryover may be carried forward
indefinitely. Capital losses keep their character as either short-term or long-term when carried over to the following year.
Part V—Tax Computation Using Maximum Capital Gains Rates
If the estate or trust received capital gains or qualified dividends that were derived from income in respect of a decedent
and a section 691(c)
deduction was claimed, you must reduce line 22 (line 10 of the Schedule D Tax Worksheet, if applicable) by the portion of
the section 691(c) deduction
claimed on Form 1041, page 1, line 19 that is attributable to the amount on Schedule D, line 22 (or line 10 of the Schedule
D Tax Worksheet, if
applicable).
If the tax using the maximum capital gains rates is less than the regular tax, enter the amount from line 35 on line 1a of
Schedule G, Form 1041.
If you completed the Schedule D Tax Worksheet instead of Part V of Schedule D, be sure to enter the amount from line 37 of
the worksheet on line 1a
of Schedule G, Form 1041.
Schedule D Tax Worksheet Keep for your records
Complete this worksheet only if line 14b, column (2), or line 14c, column (2), of Schedule D is more than
zero. Exception: Do not use this worksheet to figure the estate's or trust's tax if line 14a, column (2), or line 15, column (2), of Schedule
D or Form 1041, line 22, is zero or less; instead, see the Instructions for Schedule G, line 1a of Form 1041.
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1.
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Enter the estate's or trust's taxable income from Form 1041, line 22
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1.
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2.
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Enter qualified dividends, if any, from Form 1041, line 2b(2)
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2.
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3.
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Enter the amount from Form 4952, line 4g
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3.
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4.
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Enter the amount from Form 4952, line 4e*
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4.
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5.
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Subtract line 4 from line 3. If zero or less, enter -0-
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5.
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6.
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Subtract line 5 from line 2. If zero or less, enter -0-
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6.
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7.
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Enter the smaller of line 14a, col. (2) or line 15, col. (2) from Sch.
D
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7.
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8.
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Enter the smaller of line 3 or line 4
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8.
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9.
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Subtract line 8 from line 7. If zero or less, enter -0-
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9.
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10.
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Add lines 6 and 9
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10.
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11.
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Add lines 14b, column (2) and 14c, column (2) from Schedule D
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11.
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12.
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Enter the smaller of line 9 or line 11
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12.
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13.
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Subtract line 12 from line 10.
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13.
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14.
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Subtract line 13 from line 1. If zero or less, enter -0-.
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14.
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15.
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Enter the smaller of line 1 or $2,050
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15.
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16.
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Enter the smaller of line 14 or line 15
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16.
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17.
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Subtract line 10 from line 1. If zero or less, enter -0-
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17.
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|
|
|
|
|
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|
18.
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Enter the larger of line 16 or line 17
|
▶
|
18.
|
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|
|
|
|
If lines 15 and 16 are the same, skip lines 19 and 20 and go to line 21.
Otherwise,
go to line 19.
|
|
|
|
19.
|
Subtract line 16 from line 15
|
▶
|
19.
|
|
|
|
|
20.
|
Multiply line 19 by 5% (.05)
|
20.
|
|
|
|
If lines 1 and 15 are the same, skip lines 21 through 33 and go to line 34. Otherwise, go
to line 21.
|
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|
|
21.
|
Enter the smaller of line 1 or line 13
|
21.
|
|
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|
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|
22.
|
Enter the amount from line 19 (if line 19 is blank, enter -0-)
|
22.
|
|
|
|
|
|
|
|
23.
|
Subtract line 22 from line 21. If zero or less, enter -0-
|
▶
|
23.
|
|
|
|
|
24.
|
Multiply line 23 by 15% (.15)
|
24.
|
|
|
|
If Schedule D, line 14b, column (2) is zero or blank, skip lines 25 through 30 and go to
line 31. Otherwise, go to
line 25.
|
|
|
|
25.
|
Enter the smaller of line 9 (above) or line 14b, col. (2) (from Schedule
D)
|
25.
|
|
|
|
|
|
|
|
26.
|
Add lines 10 and 18
|
26.
|
|
|
|
|
|
|
|
|
|
|
27.
|
Enter the amount from line 1 above
|
27.
|
|
|
|
|
|
|
|
|
|
|
28.
|
Subtract line 27 from line 26. If zero or less, enter -0-
|
28.
|
|
|
|
|
|
|
|
29.
|
Subtract line 28 from line 25. If zero or less, enter -0-
|
▶
|
29.
|
|
|
|
|
30.
|
Multiply line 29 by 25% (.25)
|
30.
|
|
|
|
If Schedule D, line 14c, column (2) is zero or blank, skip lines 31 through 33 and go to
line 34. Otherwise, go to line 31.
|
|
|
|
|
31.
|
Add lines 18, 19, 23, and 29
|
31.
|
|
|
|
|
32.
|
Subtract line 31 from line 1
|
32.
|
|
|
|
|
33.
|
Multiply line 32 by 28% (.28)
|
33
|
|
|
34.
|
Figure the tax on the amount on line 18. Use the 2006 Tax Rate Schedule on page 23
|
34.
|
|
|
35.
|
Add lines 20, 24, 30, 33, and 34
|
35.
|
|
|
36.
|
Figure the tax on the amount on line 1. Use 2006 Tax Rate Schedule on page
23
|
36.
|
|
|
37.
|
Tax on all taxable income (including capital gains and qualified
dividends). Enter the smaller of line 35 or line 36 here and on line 1a of Sch. G, Form 1041
|
37.
|
|
|
*If applicable, enter instead the smaller amount entered on the dotted line next to line 4e of Form 4952.
|
|
Schedule J (Form 1041) — Accumulation Distribution for Certain Complex Trusts
Use Schedule J (Form 1041) to report an accumulation distribution for a domestic complex trust that was:
-
Previously treated at any time as a foreign trust (unless an exception is provided in future regulations), or
-
Created before March 1, 1984, unless that trust would not be aggregated with other trusts under the rules of section 643(f)
if that section
applied to the trust.
An accumulation
distribution is the excess of amounts properly paid, credited, or required to be distributed
(other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed
currently. To have an
accumulation distribution, the distribution must exceed the accounting income of the trust.
Part I—Accumulation Distribution in 2006
Line 1—Distribution Under Section 661(a)(2)
Enter the amount from Schedule B of Form 1041, line 10, for 2006. This is the amount properly paid, credited, or required
to be distributed other
than the amount of income for the current tax year required to be distributed currently.
Line 2—Distributable Net Income
Enter the amount from Schedule B of Form 1041, line 7, for 2006. This is the amount of distributable net income (DNI) for
the current tax year
determined under section 643(a).
Line 3—Distribution Under Section 661(a)(1)
Enter the amount from Schedule B of Form 1041, line 9, for 2006. This is the amount of income for the current tax year required
to be distributed
currently.
Line 5—Accumulation Distribution
If line 11, Schedule B of Form 1041 is more than line 8, Schedule B of Form 1041, complete the rest of Schedule J and file
it with Form 1041,
unless the trust has no previously accumulated income.
Generally, amounts accumulated before a beneficiary reaches age 21 may be excluded by the beneficiary. See sections 665 and
667(c) for exceptions
relating to multiple trusts. The trustee reports to the IRS the total amount of the accumulation distribution before any reduction
for income
accumulated before the beneficiary reaches age 21. If the multiple trust rules do not apply, the beneficiary claims the exclusion
when filing Form
4970, Tax on Accumulation Distribution of Trusts, as you may not be aware that the beneficiary may be a beneficiary of other
trusts with other
trustees.
For examples of accumulation distributions that include payments from one trust to another trust, and amounts distributed
for a dependent's
support, see Regulations section 1.665(b)-1A(b).
Part II—Ordinary Income Accumulation Distribution
Enter the applicable year at the top of each column for each throwback year.
Line 6—Distributable Net Income for Earlier Years
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969-1977
|
Schedule C, Form 1041, line 5
|
1978-1979
|
Form 1041, line 61
|
1980
|
Form 1041, line 60
|
1981-1982
|
Form 1041, line 58
|
1983-1996
|
Schedule B, Form 1041, line 9
|
1997-2005
|
Schedule B, Form 1041, line 7
|
For information about throwback years, see the instructions for line 13. For purposes of line 6, in figuring the DNI of the
trust for a throwback
year, subtract any estate tax deduction for income in respect of a decedent if the income is includible in figuring the DNI
of the trust for that
year.
Line 7—Distributions Made During Earlier Years
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969-1977
|
Schedule C, Form 1041, line 8
|
1978
|
Form 1041, line 64
|
1979
|
Form 1041, line 65
|
1980
|
Form 1041, line 64
|
1981-1982
|
Form 1041, line 62
|
1983-1996
|
Schedule B, Form 1041, line 13
|
1997-2005
|
Schedule B, Form 1041, line 11
|
Line 11—Prior Accumulation Distribution Thrown Back to any Throwback Year
Enter the amount of prior accumulation distributions thrown back to the throwback years. Do not enter distributions excluded
under section
663(a)(1) for gifts, bequests, etc.
Allocate the amount on line 5 that is an accumulation distribution to the earliest applicable year first, but do not allocate
more than the amount
on line 12 for any throwback year. An accumulation distribution is thrown back first to the earliest preceding tax year in
which there is
undistributed net income (UNI). Then, it is thrown back beginning with the next earliest year to any remaining preceding tax
years of the trust. The
portion of the accumulation distribution allocated to the earliest preceding tax year is the amount of the UNI for that year.
The portion of the
accumulation distribution allocated to any remaining preceding tax year is the amount by which the accumulation distribution
is larger than the total
of the UNI for all earlier preceding tax years.
A tax year of a trust during which the trust was a simple trust for the entire year is not a preceding tax year unless (a)
during that year the
trust received outside income, or (b) the trustee did not distribute all of the trust's income that was required to be distributed
currently for that
year. In this case, UNI for that year must not be more than the greater of the outside income or income not distributed during
that year.
The term “outside income”
means amounts that are included in the DNI of the trust for that year but that are not “income” of the
trust as defined in Regulations section 1.643(b)-1. Some examples of outside income are: (a) income taxable to the trust under
section 691; (b)
unrealized accounts receivable that were assigned to the trust; and (c) distributions from another trust that include the
DNI or UNI of the other
trust.
Line 16—Tax-Exempt Interest Included on Line 13
For each throwback year, divide line 15 by line 6 and multiply the result by the following:
Throwback year(s) |
|
Amount from line |
1969-1977
|
Schedule C, Form 1041, line 2(a)
|
1978-1979
|
Form 1041, line 58(a)
|
1980
|
Form 1041, line 57(a)
|
1981-1982
|
Form 1041, line 55(a)
|
1983-2005
|
Schedule B, Form 1041, line 2
|
Part III—Taxes Imposed on Undistributed Net Income
For the regular tax computation, if there is a capital gain, complete lines 18 through 25 for each throwback year. If the
trustee elected the
alternative tax on capital gains, complete lines 26 through 31 instead of lines 18 through 25 for each applicable year. If
there is no capital gain
for any year, or there is a capital loss for every year, enter on line 9 the amount of the tax for each year identified in
the instruction for line 18
and do not complete Part III. If the trust received an accumulation distribution from another trust, see Regulations section
1.665(b)-1A.
Note.
The alternative tax on capital gains was repealed for tax years beginning after December 31, 1978. The maximum rate on net
capital gain for 1981,
1987, and 1991 through 2005 is not an alternative tax for this purpose.
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969-1976
|
Form 1041, page 1, line 24
|
1977
|
Form 1041, page 1, line 26
|
1978-1979
|
Form 1041, line 27
|
1980-1984
|
Form 1041, line 26c
|
1985-1986
|
Form 1041, line 25c
|
1987
|
Form 1041, line 22c
|
1988-2005
|
Schedule G, Form 1041, line 1a
|
Line 19—Trust's Share of Net Short-Term Gain
For each throwback year, enter the smaller of the capital gain from the two lines indicated. If there is a capital loss or
a zero on either or both
of the two lines indicated, enter zero on line 19.
Throwback year(s) |
Amount from line |
1969-1970
|
Schedule D, line 10, column 2, or
|
|
Schedule D, line 12, column 2
|
1971-1978
|
Schedule D, line 14, column 2, or
|
|
Schedule D, line 16, column 2
|
1979
|
Schedule D, line 18, column (b), or
|
|
Schedule D, line 20, column (b)
|
1980-1981
|
Schedule D, line 14, column (b), or
|
|
Schedule D, line 16, column (b)
|
1982
|
Schedule D, line 16, column (b), or
|
|
Schedule D, line 18, column (b)
|
1983-1996
|
Schedule D, line 15, column (b), or
|
|
Schedule D, line 17, column (b)
|
1997-2002
|
Schedule D, line 14, column (2), or
|
|
Schedule D, line 16, column (2)
|
2003
|
Schedule D, line 14a, column (2), or
|
|
Schedule D, line 16a, column (2)
|
2004-2005
|
Schedule D, line 13, column (2), or
|
|
Schedule D, line 15, column (2)
|
Line 20—Trust's Share of Net Long-Term Gain
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969-1970
|
50% of Schedule D, line 13(e)
|
1971-1977
|
50% of Schedule D, line 17(e)
|
1978
|
Schedule D, line 17(e), or line
|
|
31, whichever is applicable,
|
|
less Form 1041, line 23
|
1979
|
Schedule D, line 25 or line 27,
|
|
whichever is applicable, less
|
|
Form 1041, line 23
|
1980-1981
|
Schedule D, line 21, less
|
|
Schedule D, line 22
|
1982
|
Schedule D, line 23, less
|
|
Schedule D, line 24
|
1983-1986
|
Schedule D, line 22, less
|
|
Schedule D, line 23
|
1987-1996
|
Schedule D, the smaller
of any gain on line 16
or line 17, column (b)
|
1997-2001
|
Schedule D, the smaller
|
|
of any gain on line 15c or
|
|
line 16, column (2)
|
2002
|
Schedule D, the smaller
|
|
of any gain on line 15a or
|
|
line 16, column (2)
|
2003
|
Schedule D, the smaller
|
|
of any gain on line 15a or
|
|
line 16a, column (2)
|
2004-2005
|
Schedule D, the smaller
|
|
of any gain on line 14a
or line 15, column (2)
|
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969-1976
|
Form 1041, page 1, line 23
|
1977
|
Form 1041, page 1, line 25
|
1978-1979
|
Form 1041, line 26
|
1980-1984
|
Form 1041, line 25
|
1985-1986
|
Form 1041, line 24
|
1987
|
Form 1041, line 21
|
1988-1996
|
Form 1041, line 22
|
1997
|
Form 1041, line 23
|
1998-2005
|
Form 1041, line 22
|
Line 26—Tax on Income Other Than Long-Term Capital Gain
Enter the applicable amounts as follows:
Throwback year(s) |
|
Amount from line |
1969
|
Schedule D, line 20
|
1970
|
Schedule D, line 19
|
1971
|
Schedule D, line 50
|
1972-1975
|
Schedule D, line 48
|
1976-1978
|
Schedule D, line 27
|
Line 27—Trust's Share of Net Short-Term Gain
If there is a loss on any of the following lines, enter zero on line 27 for the applicable throwback year. Otherwise, enter
the applicable amounts
as follows:
Throwback year(s) |
Amount from line |
1969-1970
|
Schedule D, line 10, column 2
|
1971-1978
|
Schedule D, line 14, column 2
|
Line 28—Trust's Share of Taxable Income Less Section 1202 Deduction
Enter the applicable amounts as follows:
Throwback year(s) |
Amount from line |
1969
|
Schedule D, line 19
|
1970
|
Schedule D, line 18
|
1971
|
Schedule D, line 38
|
1972-1975
|
Schedule D, line 39
|
1976-1978
|
Schedule D, line 21
|
Part IV—Allocation to Beneficiary
Complete Part IV for each beneficiary. If the accumulation distribution is allocated to more than one beneficiary, attach
an additional copy of
Schedule J with Part IV completed for each additional beneficiary. Give each beneficiary a copy of his or her respective Part
IV information. If more
than 5 throwback years are involved, use another Schedule J, completing Parts II and III for each additional throwback year.
If the beneficiary is a nonresident alien individual or a foreign corporation, see section 667(e) about retaining the character
of the amounts
distributed to determine the amount of the U.S. withholding tax.
The beneficiary uses Form 4970 to figure the tax on the distribution. The beneficiary also uses Form 4970 for the section
667(b)(6) tax adjustment
if an accumulation distribution is subject to estate or generation-skipping transfer tax. This is because the trustee may
not be the estate or
generation-skipping transfer tax return filer.
Schedule K-1 (Form 1041)— Beneficiary's Share of Income, Deductions, Credits, etc.
Use Schedule K-1 (Form 1041) to report the beneficiary's share of income, deductions, and credits from a trust or a decedent's
estate.
Grantor type trusts do not use Schedule K-1 (Form 1041) to report the income, deductions, or credits of the grantor (or other
person treated as
owner). See Special Filing Instructions for Grantor Type Trusts, Pooled Income Funds, and Electing Small Business Trusts on
page 5.
The fiduciary (or one of the joint fiduciaries) must file Schedule K-1. A copy of each beneficiary's Schedule K-1 is attached
to the Form 1041
filed with the IRS and each beneficiary is given a copy of his or her respective Schedule K-1. One copy of each Schedule K-1
must be retained for the
fiduciary's records.
Beneficiary's Identifying Number
As a payer of income, you are required to request and provide a proper identifying number for each recipient of income. Enter
the beneficiary's
number on the respective Schedule K-1 when you file Form 1041. Individuals and business recipients are responsible for giving
you their TIN upon
request. You may use Form W-9, Request for Taxpayer Identification Number and Certification, to request the beneficiary's
identifying number.
Penalty.
You may be charged a $50 penalty for each failure to provide a required TIN, unless reasonable cause is established
for not providing it. Explain
any reasonable cause in a signed affidavit and attach it to this return.
Tax Shelter Identification Number
See Form 8271, Investor Reporting of Tax Shelter Registration Number, for information regarding the fiduciary's reporting
requirements.
You do not need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule. The boxes must use
the same numbers and
titles and must be in the same order and format as on the comparable IRS Schedule K-1. The substitute schedule must include
the OMB number and the
6-digit form ID code in the upper right hand corner of the schedule.
You must provide each beneficiary with the Instructions for Beneficiary Filing Form 1040 or other prepared specific instructions
for each item
reported on the beneficiary's Schedule K-1.
Inclusion of Amounts in Beneficiaries' Income
Simple trust.
The beneficiary of a simple trust must include in his or her gross income the amount of the income required to be
distributed currently, whether or
not distributed, or if the income required to be distributed currently to all beneficiaries exceeds the distributable net
income (DNI), his or her
proportionate share of the DNI. The determination of whether trust income is required to be distributed currently depends
on the terms of the trust
instrument and applicable local law. See Regulations section 1.652(c)-4 for a comprehensive example.
Estates and complex trusts.
The beneficiary of a decedent's estate or complex trust must include in his or her gross income the sum of:
-
The amount of the income required to be distributed currently, or if the income required to be distributed currently to all
beneficiaries
exceeds the DNI (figured without taking into account the charitable deduction), his or her proportionate share of the DNI
(as so figured),
and
-
All other amounts properly paid, credited, or required to be distributed, or if the sum of the income required to be distributed
currently
and other amounts properly paid, credited, or required to be distributed to all beneficiaries exceeds the DNI, his or her
proportionate share of the
excess of DNI over the income required to be distributed currently.
See Regulations section 1.662(c)-4 for a comprehensive example.
For complex trusts that have more than one beneficiary, and if different beneficiaries have substantially separate
and independent shares, their
shares are treated as separate trusts for the sole purpose of determining the amount of DNI allocable to the respective beneficiaries.
A similar rule
applies to treat substantially separate and independent shares of different beneficiaries of an estate as separate estates.
For examples of the
application of the separate share rule, see the regulations under section 663(c).
Gifts and bequests.
Do not include in the beneficiary's income any gifts or bequests of a specific sum of money or of specific property
under the terms of the
governing instrument that are paid or credited in three installments or less.
Amounts that can be paid or credited only from income of the estate or trust do not qualify as a gift or bequest of
a specific sum of money.
Past years.
Do not include in the beneficiary's income any amounts deducted on Form 1041 for an earlier year that were credited
or required to be distributed
in that earlier year.
Character of income.
The beneficiary's income is considered to have the same proportion of each class of items entering into the computation
of DNI that the total of
each class has to the DNI (for example, half dividends and half interest if the income of the estate or trust is half dividends
and half interest).
Allocation of deductions.
Generally, items of deduction that enter into the computation of DNI are allocated among the items of income to the
extent such allocation is not
inconsistent with the rules set out in section 469 and its regulations, relating to passive activity loss limitations, in
the following order.
First, all deductions directly attributable to a specific class of income are deducted from that income. For example,
rental expenses, to the
extent allowable, are deducted from rental income.
Second, deductions that are not directly attributable to a specific class of income generally may be allocated to
any class of income, as long as a
reasonable portion is allocated to any tax-exempt income. Deductions considered not directly attributable to a specific class
of income under this
rule include fiduciary fees, safe deposit box rental charges, and state income and personal property taxes. The charitable
deduction, however, must be
ratably apportioned among each class of income included in DNI.
Finally, any excess deductions that are directly attributable to a class of income may be allocated to another class
of income. However, in no case
can excess deductions from a passive activity be allocated to income from a nonpassive activity, or to portfolio income earned
by the estate or trust.
Excess deductions attributable to tax-exempt income cannot offset any other class of income.
In no case can deductions be allocated to an item of income that is not included in the computation of DNI, or attributable
to corpus.
You cannot show any negative amounts for any class of income shown in boxes 1 through 8 of Schedule K-1. However,
for the final year of the estate
or trust, certain deductions or losses can be passed through to the beneficiary(ies). See the instructions for box 11 for
more information on these
deductions and losses. Also, the beneficiary's share of depreciation and depletion is apportioned separately. These deductions
may be allocated to the
beneficiary(ies) in amounts greater than their income. See Depreciation, Depletion, and Amortization on page 15 and Rev. Rul.
74-530, 1974-2 C.B. 188.
The beneficiary's income from the estate or trust must be included in the beneficiary's tax year during which the tax year
of the estate or trust
ends. See Pub. 559 for more information, including the effect of the death of a beneficiary during the tax year of the estate
or trust.
General Reporting Information
If the return is for a fiscal year or a short tax year, fill in the tax year space at the top of each Schedule K-1. On each
Schedule K-1, enter the
information about the estate or trust and the beneficiary in Parts I and II (items A through J). In Part III, enter the beneficiary's
share of each
item of income, deduction, credit, and any other information the beneficiary needs to file their income tax return.
Codes.
In box 9 and boxes 11 through 14, identify each item by entering a code in the column to the left of the entry space
for the dollar amount. These
codes are identified in these instructions and on the back of the Schedule K-1.
Attached statements.
Enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each
item for which you have attached
a statement providing additional information. For those informational items that cannot be reported as a single dollar amount,
enter the code and
asterisk in the left-hand column and enter “ STMT” in the entry space to the right to indicate that the information is provided on an attached
statement. More than one attached statement can be placed on the same sheet of paper and should be identified in alphanumeric
order by box number
followed by the letter code (if any). For example: “ Box 9, Code A—Depreciation” (followed by the information the beneficiary needs).
Too few entry spaces on Schedule K-1?
If the estate or trust has more coded items than the number of spaces in box 9 or boxes 11 through 14, do not enter
a code or dollar amount in the
last entry space of the box. In the last entry space, enter an asterisk in the left column and enter “ STMT” in the entry space to the right.
Report the additional items on an attached statement and provide the box number, the code, description, and dollar amount
or information for each
additional item. For example: “ Box 13, Code H—Alcohol Fuel Credit—$500.00.”
Part I. Information About the Estate or Trust
On each Schedule K-1, enter the name, address, and identifying number of the estate or trust. Also, enter the name and address
of the fiduciary.
If the fiduciary of a trust or decedent's estate filed Form 1041-T, you must check this box and enter the date it was filed.
If this is the final year of the estate or trust, you must check this box.
Note.
If this is the final K-1 for the beneficiary, check the “ Final K-1” box at the top of Schedule K-1.
If the estate or trust is a registration-required tax shelter, you must check this box and enter the tax shelter registration
number in Item F.
If the estate or trust has invested in a registration-required tax shelter, you must check this box and furnish a copy of
its Form 8271, Investor
Reporting of Tax Shelter Registration Number, to the beneficiary(ies).
Part II. Information About the Beneficiary
Complete a Schedule K-1 for each beneficiary. On each Schedule K-1, enter the beneficiary's name, address, and identifying
number.
Check the foreign beneficiary box if the beneficiary is a nonresident alien individual, foreign corporation, or a foreign
estate or trust.
Otherwise, check the domestic beneficiary box.
Part III. Beneficiary's Share of Current Year Income, Deductions, Credits, and Other Items
Enter the beneficiary's share of the taxable interest income minus allocable deductions.
Box 2a—Total Ordinary Dividends
Enter the beneficiary's share of ordinary dividends minus allocable deductions.
Box 3—Net Short-Term Capital Gain
Enter the beneficiary's share of the net short-term capital gain from line 13, column (1), Schedule D (Form 1041), minus allocable
deductions. Do
not enter a loss on line 3. If, for the final year of the estate or trust, there is a capital loss carryover, enter in box
11, using code B, the
beneficiary's share of short-term capital loss carryover. However, if the beneficiary is a corporation, enter in box 11, using
code B, the
beneficiary's share of all short- and long-term capital loss carryovers as a single item. See section 642(h) and related regulations
for more
information.
Boxes 4a through 4c—Net Long-Term Capital Gain
Enter the beneficiary's share of the net long-term capital gain from lines 14a through 14c, column (1), Schedule D (Form 1041)
minus allocable
deductions.
Do not enter a loss in boxes 4a through 4c. If, for the final year of the estate or trust, there is a capital loss carryover,
enter in box 11,
using code C, the beneficiary's share of the long-term capital loss carryover. (If the beneficiary is a corporation, see the
instructions for line 3.)
See section 642(h) and related regulations for more information.
Gains or losses from the complete or partial disposition of a rental, rental real estate, or trade or business activity that
is a passive activity,
must be shown on an attachment to Schedule K-1.
Box 5—Other Portfolio and Nonbusiness Income
Enter the beneficiary's share of annuities, royalties, or any other income, minus allocable deductions (other than directly
apportionable
deductions), that is not subject to any passive activity loss limitation rules at the beneficiary level. Use boxes 6 through
8 to report income items
subject to the passive activity rules at the beneficiary's level.
Boxes 6 through 8—Ordinary Business Income, Rental Real Estate, and Other Rental Income
Enter the beneficiary's share of trade or business, rental real estate, and other rental income, minus allocable deductions
(other than directly
apportionable deductions). To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach
a separate schedule
showing the beneficiary's share of income derived from each trade or business, rental real estate, and other rental activity.
Box 9—Directly Apportioned Deductions
The limitations on passive activity losses and credits under section 469 apply to estates and trusts. Estates and trusts that
distribute income to
beneficiaries are allowed to apportion depreciation, depletion, and amortization deductions to the beneficiaries. These deductions
are referred to as
“directly apportionable deductions.”
Rules for treating a beneficiary's income and directly apportionable deductions from an estate or trust and other rules for
applying the passive
loss and credit limitations to beneficiaries of estates and trusts have not yet been issued.
Any directly apportionable deduction, such as depreciation, is treated by the beneficiary as having been incurred in the same
activity as incurred
by the estate or trust. However, the character of such deduction may be determined as if the beneficiary incurred the deduction
directly.
To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach a separate schedule showing
the beneficiary's
share of directly apportionable deductions derived from each trade or business, rental real estate, and other rental activity.
Enter the beneficiary's share of directly apportioned deductions using codes A through C.
Depreciation (code A).
Enter the beneficiary's share of the depreciation deductions directly apportioned to each activity reported in boxes
5 through 8. See the
instructions on page 16 for a discussion of how the depreciation deduction is apportioned between the beneficiaries and the
estate or trust. Report
any AMT adjustment or tax preference item attributable to depreciation separately in box 12, using code G.
Note.
An estate or trust cannot make an election under section 179 to expense certain tangible property.
Depletion (code B).
Enter the beneficiary's share of the depletion deduction under section 611 directly apportioned to each activity reported
in boxes 5 through 8. See
the instructions on page 16 for a discussion of how the depletion deduction is apportioned between the beneficiaries and the
estate or trust. Report
any tax preference item attributable to depletion separately in box 12, using code H.
Amortization (code C).
Itemize the beneficiary's share of the amortization deductions directly apportioned to each activity reported in boxes
5 through 8. Apportion the
amortization deductions between the estate or trust and the beneficiaries in the same way that the depreciation and depletion
deductions are divided.
Report any AMT adjustment attributable to amortization separately in box 12, using code I.
Box 10—Estate Tax Deduction (Including Certain Generation-Skipping Transfer Taxes)
If the distribution deduction consists of any income in respect of a decedent, and the estate or trust was allowed a deduction
under section 691(c)
for the estate tax paid attributable to such income (see the line 19 instructions on page 19), then the beneficiary is allowed
an estate tax deduction
in proportion to his or her share of the distribution that consists of such income. For an example of the computation, see
Regulations section
1.691(c)-2. Figure the computation on a separate sheet and attach it to the return.
Box 11, Code A—Excess Deductions on Termination
If this is the final return of the estate or trust, and there are excess deductions on termination (see the instructions for
line 22 on page 19),
enter the beneficiary's share of the excess deductions in box 11, using code A. Figure the deductions on a separate sheet
and attach it to the return.
Excess deductions on termination occur only during the last tax year of the trust or decedent's estate when the total deductions
(excluding the
charitable deduction and exemption) are greater than the gross income during that tax year.
Generally, a deduction based on an NOL carryover is not available to a beneficiary as an excess deduction. However, if the
last tax year of the
estate or trust is also the last year in which an NOL carryover may be taken (see section 172(b)), the NOL carryover is considered
an excess deduction
on the termination of the estate or trust to the extent it is not absorbed by the estate or trust during its final tax year.
For more information, see
Regulations section 1.642(h)-4 for a discussion of the allocation of the carryover among the beneficiaries.
Only the beneficiary of an estate or trust that succeeds to its property is allowed to deduct that entity's excess deductions
on termination. A
beneficiary who does not have enough income in that year to absorb the entire deduction may not carry the balance over to
any succeeding year. An
individual beneficiary must be able to itemize deductions in order to claim the excess deductions in determining taxable income.
Box 11, Codes B and C—Unused Capital Loss Carryover
Upon termination of the trust or decedent's estate, the beneficiary succeeding to the property is allowed as a deduction any
unused capital loss
carryover under section 1212. If the estate or trust incurs capital losses in the final year, use the Capital Loss Carryover Worksheet on
page 39 to figure the amount of capital loss carryover to be allocated to the beneficiary.
Box 11, Codes D and E—Net Operating Loss (NOL) Carryover
Upon termination of a trust or decedent's estate, a beneficiary succeeding to its property is allowed to deduct any unused
NOL (and any ATNOL)
carryover for regular and AMT purposes if the carryover would be allowable to the estate or trust in a later tax year but
for the termination. Enter
in box 11, using codes D and E, the unused carryover amounts.
Box 12—Alternative Minimum Tax Items
Adjustment for minimum tax purposes (code A).
Enter the beneficiary's share of the adjustment for minimum tax purposes.
To figure the adjustment, subtract the beneficiary's share of the income distribution deduction figured on Schedule B, line 15, from the
beneficiary's share of the income distribution deduction on a minimum tax basis figured on Schedule I, line 44. The difference is the
beneficiary's share of the adjustment for minimum tax purposes.
Note.
Schedule B, line 15 equals the sum of all Schedule K-1s, box 1, 2a, 3, 4a, 5, 6, 7, and 8.
AMT adjustment attributable to qualified dividends, net short-term capital gains, or net long-term capital gains (codes B
through D).
If any part of the amount reported in box 12, code A, is attributable to qualified dividends (code B), net short-term
capital gain (code C), or net
long-term capital gain (code D), enter that part using the applicable code.
AMT adjustment attributable to unrecaptured section 1250 gain or 28% rate gain (codes E and F).
Enter the beneficiary's distributive share of any AMT adjustments to the unrecaptured section 1250 gain (code E) or
28% rate gain (code F),
whichever is applicable, in box 12.
Accelerated depreciation, depletion, and amortization (codes G through I).
Enter any adjustments or tax preference items attributable to depreciation, depletion, or amortization that were directly
apportioned to the
beneficiary. For property placed in service before 1987, report separately the accelerated depreciation of real and leased
personal property.
Exclusion Items (code J).
Enter the beneficiary's share of the adjustment for minimum tax purposes from Schedule K-1, box 12, code A, that is
attributable to exclusion items
(Schedule I, lines 2 through 6 and 8).
Box 13—Credits and Credit Recapture
Enter each beneficiary's share of the credits and credit recapture using the applicable codes. Listed below are the credits
that can be allocated
to the beneficiary(ies). Attach a statement if additional information must be provided to the beneficiary as explained below.
-
Credit for estimated taxes (code A)—Payment of estimated tax to be credited to the beneficiary (section 643(g)).
See the instructions for line 24b on page 20 before you make an entry to allocate any estimated tax payments to a beneficiary.
If the fiduciary
does not make a valid election, then the IRS will disallow the estimated tax payment that is reported on Schedule K-1 and
claimed on the beneficiary's
return.
-
Credit for backup withholding (code B).
-
The low-income housing credit
(code C).
-
Qualified rehabilitation expenditures (code D). Attach a statement that shows the amount and corresponding line on Form 3468
for reporting
each type of expenditure.
-
Basis of other investment credit property (code E). Attach a statement that shows the basis of and corresponding lines for
reporting
property qualifying for the energy credit, qualifying advanced coal project credit, and qualifying gasification project credit.
If the statement shows
an amount for line 2c, it must also include an amount to enter on line 2d, and if it shows an amount for line 2f, it must
also include an amount to
enter on line 2g.
-
Work opportunity credit (code F).
-
Welfare-to-work credit (code G).
-
Alcohol fuel credit (code H). If the credit includes the small ethanol producer credit, attach a statement that shows the
beneficiary's
share of the small ethanol producer credit, the number of gallons claimed for the small ethanol producer credit, and the estate's
or trust's
productive capacity for alcohol.
-
Credit for increasing research activities (code I).
-
Renewable electricity, refined coal, and Indian coal production credit (code J). Attach a statement that shows the amount
of the credit the
beneficiary must report on line 9 and line 23 of Form 8835, in case the beneficiary is required to file that form in addition
to Form
3800.
-
Empowerment zone and renewal community employment credit (code K).
-
Indian employment credit (code L).
-
Orphan drug credit (code M).
-
Credit for employer provided child care and facilities (code N).
-
Biodiesel and renewable diesel fuels credit (code O). If the credit includes the small agri-biodiesel credit, attach a statement
that shows
the beneficiary's share of the small agri-biodiesel credit, the number of gallons claimed for the small agri-biodiesel credit,
and the estate's or
trust's productive capacity for agri-biodiesel.
-
Nonconventional source fuel credit (code P).
-
Clean renewable energy bond and Gulf tax credit bond credits (code Q). Attach a statement that shows the amount of the credit
the
beneficiary must report on line 3 and line 9 of Form 8912.
-
Credits for employers affected by Hurricane Katrina, Rita, or Wilma (code R). Attach a statement that shows the amount of
the credit the
beneficiary must report on line 3 and line 7 of Form 5884-A, in case the beneficiary is required to file that form in addition
to Form
3800.
-
Energy efficient appliance credit (code S).
-
Recapture of credits (code T). On an attached statement to Schedule K-1, provide any information the beneficiary will need
to report
recapture of credits.
Enter the dollar amounts and applicable codes for the items listed under Other Information.
Domestic production activities information.
The estate or trust allocates qualified production activity income (QPAI) (whether positive or negative) and Form
W-2 wages based on the relative
proportion of the trust's or estate's DNI that is distributed or required to be distributed to the beneficiary. If the estate
or trust has no DNI for
the tax year, QPAI and Form W-2 wages are allocated entirely to the estate or trust.
Qualified production activities income (code C).
Enter the beneficiary's share, if any, of the estate's or trust's QPAI. The QPAI will be less than zero if the cost
of goods sold and deductions
allocated and apportioned to domestic production gross receipts (DPGR) is more than the estate's or trust's DPGR. See Form
8903, Domestic Production
Activities Deduction, and its instructions for more details.
Form W-2 wages (code D).
Use code D to report the beneficiary's share, if any, of Form W-2 wages. Do not enter more than 6% of the beneficiary's
share, if any, of the
estate's or trust's QPAI. See Form 8903 and its instructions for more details.
Foreign trading gross receipts (code G).
Enter the beneficiary's share, if any, of foreign trading gross receipts. See Form 8873, Extraterritorial Income Exclusion,
for more information.
Other Information (code H).
List on a separate sheet the tax information the beneficiary will need to complete their return that is not entered
elsewhere on Schedule K-1.
Income tax withheld on wages cannot be distributed to the beneficiary.
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