Unformatted text preview: is allocated to the trust and none to the beneficiaries. The above-cited regulation specifies that to the extent allowable depreciation exceeds the amount of any required reserve, such excess is allocated on the basis of trust income allocable to trustee and beneficiaries. Allowable depreciation Allocated based on trust reserve Allocated to 100% income beneficiaries $ 7,000 (3,000) $ 4,000 (See Example 5 and p. 25-9.) 25-21 Rents Dividends Capital loss ($7,000 but limited to $3,000) Less: Rent expense ($70,000 but limited to rent income) Trustee fee Exemption (complex trust) Trust taxable income $62,000 12,000 (3,000) $71,000 (62,000) (4,000) (100) $ 4,900 The $8,000 excess of rent expense over rent income is a passive activity loss that may not be deducted against the trust's dividend income. Note that the $25,000 loss allowance is not available for trusts. This passive activity loss will be carried forward by the trust. (See p. 25-10 and 469.) 25-22 a. The $19,900 legal and accounting fees and the $6,100 executor's fee may be deducted either on the estate tax return (Form 706) or on the estate income tax return (Form 1041) but not both. The executor may allocate a portion of the expenses to each return in order to maximize the tax benefit of the deduction. In the case of Decedent L, the estate's marginal income tax rate on $60,000 of income is 35 percent (2011), whereas the marginal estate tax rate on a $1,700,000 taxable estate is zero percent. Therefore, the entire $26,000 of expenses should be deducted on the estate's income tax return. The $4,800 funeral expenses may only be deducted on the estate tax return (Form 706). [See p. 25-7 and 642(g).] In this case, L's taxable estate is zero because of the unlimited marital deduction of 2056. Therefore, the executor should deduct all the administrative expenses on the estate's income tax return. [See p. 25-7 and 642(g).] $4,000 $10,000 distribution $20,000 taxable DNI $50,000 DNI b. 25-23 a. (See Example 12, p. 25-15.) b. $...
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This note was uploaded on 02/05/2012 for the course ACCT 110 taught by Professor Smith during the Spring '11 term at Adrian College.
- Spring '11