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Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 28084
Experience:  Personal Investment, Tax Preparation
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Does a distribution of an irrevocable trust - is that

Customer Question

Does a distribution of an irrevocable trust - is that considered to be capital gains or as the FLA statute says Income” means any form of payment to an individual, regardless of source, including, but not limited to: ***** ***** commissions and bonuses, compensation as an independent contractor, worker’s compensation, disability benefits, annuity and retirement benefits, pensions, dividends, interest, royalties, trusts, and any other payments, made by any person,
I am referring to a distribution of a K1 trust in the amount of 100K - is that capital gains for the purposes of income tax but income for the purposes of child support?
Submitted: 9 months ago.
Category: Finance
Expert:  Lev replied 9 months ago.

The distribution from the irrevocable trust may be taxable or not taxable,
The taxable part may be partly capital gain and partly an ordinary income.
All depends on circumstances.
For instance - if the trust sells a capital property , realize capital gain and passes that gain to beneficiaries - that will be reported as capital gain on K1.

However - if the trust received interest income - and that income is passed to beneficiaries - that will be ordinary income.

If the trust has NO income - and distribute the corpus - that would not be taxable.

It is possible that the trust receive not taxable income - in this case that income will be passed to beneficiaries as not taxable as well.

So - the character and type of income which the trust passes to beneficiaries would not change.

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