Southern Geek
Recycles dryer sheets
I'm in the process of filling out tax forms for a Simple Trust for which my wife is the trustee. She is also a beneficiary of the trust along with my 2 daughters. The only asset in the trust is a residential rental property. This year we had to replace the air handler in the rental property. When filling out the Schedule E for the rental, it is clear from the instructions that the expense for the replacement cannot be deducted for the year, but must be depreciated. The result is that the total income reported on the Schedule E exceeds the actual net income received by the trust from the property.
Each year the trust is required to distribute the net income. However, when filling out the 1041 for the trust, I realized that since the DNI is less than the income reported on Schedule E (the difference being the cost of the replacement), the trust will end up paying taxes. This doesn't seem right. Did I miss something?
Each year the trust is required to distribute the net income. However, when filling out the 1041 for the trust, I realized that since the DNI is less than the income reported on Schedule E (the difference being the cost of the replacement), the trust will end up paying taxes. This doesn't seem right. Did I miss something?