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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2342
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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taxation of capital gain in residuary trust

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How are capital gains in a residuary trust taxed by IRS? Who/what is taxed? Tax rates used? How does it affect taxation of income beneficiary?

Dear Customer -

Normally, capital gains are taxed at the trust level, except in the final year of the trust. The trust tax rate on capital gains is similar to individuals with a maximum tax rate of 15%.

Hope this helps.

Steve

MequonCPA and 4 other Tax Specialists are ready to help you
Customer: replied 9 years ago.
Reply to Steve's Post: Thanks, Steve. Two clarifications: Who/what is taxed in the final year of the trust? How does taxation at the trust level affect income beneficiary's tax (or vice versa)? In other words, is tax paid twice or is there a credit for tax to income beneficiary for capital gains tax paid by the trust, or vice-versa?

Dear Customer -

In the final year of the trust, all income, gains/losses, etc for that year is taxed to the beneficiaries. It will be reported to them on a Form 1065 Schedule K-1.

Any tax paid by the trust in prior years, is just that. The beneficiaries won't pick up the prior years income on their returns, nor will they get a credit for those taxes paid. The income is only taxed once, either at the trust level or the beneficiary level.

The trust will distribute its remaining assets which have already been reduced by the taxes paid.

Hope this helps.

Steve

Customer: replied 9 years ago.
Thanks. This was very helpful. I will add "JustAnswer" to my Bookmarks and use you again!

Glad I could help.