Have a Tax Question? Ask a Tax Expert
If I (mother/trustee) set up a Delaware Business Trust with two (father and 18 yr old daughter) beneficiaries to run a piece of rental property, do we have to send out K-1's for the beneficiaries? Or can the income/loss flow through to the father's (my husband's) Form 1040 directly without having to create a K-1? We have lot of passive losses built up into the rental property from renovations now completed on our Sch E in past years. My alternative is a single member LLC. I'd like to use the DBT because of the 1031 exchange availability.
A couple of things: Similar to a 1099 form received that highlights contractor income, you do not have to file the K-1 with your personal income tax return. Instead, you use the data on the form to fill out portions of your personal tax return.
Second, because of Internal Revenue Bulletin 2004-33, DBTs CAN do 1031 exchanges ...
BUt provided the entity selling thepropertyis the same as the entity purchasing the replacement property, Corporations or Trusts that are 100% owned by the same entity are considered “Disregarded Entities”, and the same entity for 1031 purposes.
THe DBT IS an excellent vehicle FOR all kinds of reasons .. but the K-1 shouldn't really caus problems, and again, the income ends up on the 1040 anyway
So a K-1 must be created and mailed each year?
by the trust for bookkeeping purposes?
yes, or the information from it
Tha k-1 is the pass-through vehicle, if you will
Giving the beneficiary the information needed to put on their 1040
Ok. Is a K-1 filed with IRS like a 1099/1096? Sounds like maybe not since we just need to get the pertinent information to the 1040.
If you use, say TUrbotax, or one of the other packages, the k-1 will be generated automatically, by just answering the questions, if you use the inter method
THat is the first thing I told you a K-! is NOT filed
It's kind of like a 1099
its a reporting device to give the taxper so that they can do their taxes and include the information FROM IT on their own 1040
so sorry for the typos (INTERVIEW) method
A 1096 is filed with IRS to report income.
When using turbosax, once you till it that you want to do a 1041 for a trust, it will ask you the questions needed to do the form and will generate the k-1s automatically
sorry again ... "Turbo Tax" ( or any of the software tax prep packages)
Ok, thanks so much. Very helpful info. I don't use Turbotax, have a preparer, so I would have to produce th
e K-1 myself to give to him to file the 1040 is my concern.
Who must file Form 1096
Any person or entity who files, by paper, forms W-2G, 1098, 1098-E, 1098-T, 1099-A, 1099-C, 1099-CAP, 1099-DIV, 1099-G, 1099-H, 1099-INT, 1099-LTC, 1099-MISC, 1099-OID, 1099-PATR, 1099-Q, 1099-R, 1099-S, 1099-SA, 3921, 3922, 5498, 5498-ESA, and/or 5498-SA, must prepare and submit Form 1096 as well.
Do I have to send a copy of the K-1 to IRS similar to process for 1099'
sending the 1096 summary to IRS.
I see that K-1 is not on that list, so don't have to file summary sheet for the K-1 with IRS, right?
Ok, got it. Thanks for your patience! I send blessings for your being available to answer these questions so quickly!
No problem here's an excellent overview of the FEDERAL tax aspect of a DBT:
The states of Delaware and Alaska have passed legislation for business trusts specific to those states. Unlike the term "Massachusetts business trust," which designates business trusts in general, regardless of location, the terms "Delaware business trust" and "Alaska business trust" refer only to business trusts in those respective states that meet certain state-mandated guidelines. Such business trusts receive special tax treatment when it comes to state taxation, but the federal government does not recognize them as being different from other types of business trusts.
For Lane Only. What is the difference between a Delaware Business Trust and a Business Trust set up under the form in Kentucky?