Estate income

[Snaggletooth]

An estate starts with $15,000 and earns $1000 in interest before it is closed (in less than a year)

How much of this will be taxable income to the beneficiaries on their K-1s?

1. Only $1,000
2. $16,000.

The answer may depend on the nature of the $15,000 which began the estate. For purposes of this discussion, please assume it is life insurance proceeds.

Thanks

[Lion]

Did it start with $0, add $15,000 in life insurance proceeds during the tax year, and earn $1,000 in interest?

[Snaggletooth]

Proceeds of $15,000 were deposited in the bank to start the estate...Thnks

[DoubleO]

The estate has $1000 of reportable gross income on a 1041 that may be offset by qualifying expenses occurred in administering the estate. If income - expenses is a positive amount and at least that amount was distributed to benes, then benes will get K1 and pay tax. If not distributed, amount over $600 will be taxable to estate on 1041. If expenses more than income, don’t forget about excess deductions being passed to benes if final year.

[TaxGuyBill]

The answer may depend on the nature of the $15,000 which began the estate. For purposes of this discussion, please assume it is life insurance proceeds.

Exactly it does depend on the nature of the $15,000. If that $15,000 went directly to a beneficiary, how would it be taxed? That is the answer to your question.

Life insurance proceeds are not taxable, so just like it would not be taxable if it went directly to the beneficiary, it won't be taxable if it flows through the Estate on a K-1.