Simple Trust Sec. 1245 Gain from depreciation and ProSeries

[Gretel]

Trustee has discretion of allocation gains to income. I cannot find in ProSeries what I need to do to not count this gain as income for the trust. Any ideas?

[Bees Knees]

The gain has to be reported on page 1 of the 1041, just like all other income. If the trustee has discretion of allocating gains to income and you don't want the trust to pay tax on those gains, then what you are saying is you want the beneficiary(s) to pay tax on those gains. In order to do that, there has to be a distribution of those gains to the beneficiary. Assuming there is a distribution of those gains, the distribution will be entered on line 10 of Schedule B. Line 8 of Schedule B will not include those gains because you are saying the accounting income of the trust does not include those gains.

[Bees Knees]

Correction - the accounting income determines the amount paid to income beneficiaries each year. So the gains ARE included on line 8 of Schedule B if you want the beneficiary(s) to pay tax on those gains.

[Gretel]

Thank you, Bees. The income was distributed, so to speak. The truck, that was used 75% in the deceased spouse farm business and was part of the joint revocable trust was traded in for a personal vehicle. Hence surviving spouse has all proceeds of this truck.

I am actually not sure anymore that this is considered capital gain since it is basically depreciation gain. Only the gain from the 25% personal use might be capital gains. Of course all based on 50% ownership for her.

I need to do some more reading on this but any advise is appreciated.

[Gretel]

Cap.Gains/Depreciation allocation

Here is my final question:

Trustee/beneficiary has discretionary power for distributions and how to treat capital gains etc. The personal car was actually also titled in trust name but the received $8,000 back from the trade in. Depreciation gain is $10,000. Since trustee can decide to allocate gain to income can she also decide to only use $8,000 and hence increasing accounting income by this amount? This would give her maximum tax benefit plus it follows the cash flow ($8,000 was deposited into her checking account). This would make it a complex trust.

If trustee distributes $10,000 would this be considered that only income to be distributed has actually been distributed and hence make it a simple trust.

I am fine with the entries in ProSeries. Thanks.

[Bees Knees]

The fact that the trustee has discretion to distribute or not to distribute makes it a complex trust, regardless of whether or not all accounting income is distributed. Thus, if the trustee has discretion to allocate capital gains to accounting income, the trustee should also have the discretion as to how much (if any) gets allocated.