1041 Capital Gains

[Snaggletooth]

I'm not the greatest at 1041s. It appears that Capital Gains are not calculated in Distributable Net Income, even if the money is distributed. Does it follow that the Beneficiaries do not have to report Capital Gain income that they received??

[Anarchrist]

No .

[Snaggletooth]

I suppose I have to give more information to understand what's happening.

Assume the only income/expenses in the trust are LT Capital Gains of $5000, and Administrative Expenses of $800 for net income of $4200. Amounts distributed to beneficiaries is $10,000.

Drake is not calculating any income on the K-1s for the beneficiaries. Could this be correct??

[New York Enrolled Agent]

Yes - as a general rule, the trust pays on the capital gains until the final year of a trust.

[Rapid Robert]

What NYEA said. Here are a few select quotes from some CE materials I have.

"Typical income items, such as interest income, dividends, and business profits, are allocated to income, while short-term and long-term capital
gains are usually allocated to principal. The allocation of capital gains is made on Schedule D of Form 1041. Allocations of
income to the beneficiaries are reported on Schedule K-1."

"capital gains generally are not counted in DNI unless they are allocable to income under the terms of the governing
instrument or state law, allocated to corpus and actually distributed as capital gains to beneficiaries, or used in determining the
amount that is distributed or required to be distributed."

[Snaggletooth]

Thanks folks. The peculiar 1041 I am working on has Capital Gains which are insufficient to create taxation at the 1041 level, and are not passed on to the recipients either. Free money.