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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22837
Experience:  Taxes, Immigration, Labor Relations
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My grandmother passed away left the house in trust 100% to

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My grandmother passed away left the house in trust 100% to my father. My father listed me as the beneficiary 100% on the trust if he dies. We are in the process of renting the property out both of us have spent almost $30, 000 fixing the property. I got a W-9 from the property manager, would like to know if I and my father name goes on the form and the correct tax classification.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to Just Answer!
Because the property is owned by the trust - and the trust is a separate legal and taxing entity - you need to provide information of the trust - including trusts's tax ID.
You do not need to provide any information about beneficiaries of the trust.

Customer:

So the tax classification should be Trust/estate

Lev :

That is correct - because the trust is a separate legal and taxing entity. If you do not have - you need to apply for EIN for the trust. Whoever is the trustee will be in charge for the trust - and will file income tax returns for that trust.

Customer:

I do have a number for the trust, my father is 100%. So he would have to file the tax, and fill out the W-9.?

Lev :

That is correct. I assume that your father is a beneficiary of the trust and is a trustee (after your grandmother passed away) - so he is in charge.
He will file income tax return for the trust - form 1041. He will prepare and sign form W9 for the trust as a trustee.

Customer:

Is that separate from his personal income tax filing?

Customer:

So you telling me I have no way to file for the amount I put in the renovation of the property?

Lev :

Yes - that is not related to personal income tax return - neither yours nor your father's.
Because the trust is a separate legal and taxing entity - it filed its own income tax return - and the trustee is in charge of that filing.

Customer:

Wow very interesting !

Lev :

That is correct. You do not own the trust - you are a beneficiary of the trust. At the same time the trust is a separate legal entity. It may own property, may own and run business - similar to a corporation, etc.
The trusts filed its own income tax return and may have income tax liability.
If the trust passes income tax liability to beneficiaries - it issues a form K1 to that beneficiary.

Customer:

Well my grandmother passed away in 2011, and we been paying the tax on the property. The property is paid in full no liens. never heard of the K1 should my father discuss that with the trust?

Lev :

Well - as for individuals - there are certain filing requirements for the trust.
I assumed that was a living trust - and it was ignored as long as your grandmother was alive.
After she died - the trust became irrevocable - and became a separate entity.


See instruction - www.irs.gov/pub/irs-pdf/i1041.pdf
page 4 - Who Must File - The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:


1. Any taxable income for the tax year,
2. Gross income of $600 or more (regardless of taxable income), or
3. A beneficiary who is a nonresident alien.
So if the trust had NO taxable income and its gross income was less than $600 in 2011 and in 2012 - filing form 1041 was not required.

Customer:

There was no income just cleaned it out and finishing up renovation, to rent it out next month.

Customer:

When he file the tax return will the money go to the trust or him?

Lev :

K1 is used to pass income to beneficiaries. If there were no income - nothing were to pass - and no need for K1. But because you expect rental income - the situation will be different - and you might want to have a local tax preparer helping you with that.
The rental income will be received by the trust - because the trust owns the property. Then - the trust will distribute the money to your father as a beneficiary - and will issue form K1 - which your father will used with his individual tax return.

Customer:

thanks you have been very helpful, I have a starting point

Lev :

I am glad to be helpful.
My goal to provide EXCELLENT service.
Be sure to come back if needed.

Customer:

Will all this change if my father take the house out of the trust?

Lev :

Yes - if the house will be distributed from the trust to your father as a beneficiary - he will own the house - and he (as an individual) will receive rental income.
If there will be nothing left in the trust - the trust will be dissolved. And your father as a trustee - will need to file the final tax return for the trust.

Customer:

What happens if he rent the property out without informing the trust?

Lev :

The issue is that he is the trustee - and " informing the trust" means informing the trustee...
So without informing the trust is not possible. As a trustee - he will be responsible anyway.

Customer:

If the house is out of trust and my farther add me to the Deed can we both file taxes on portion of the rental income?

Lev :

Yes - that is correct - each will use schedule E to report a portion of rental income and rental expenses.

Customer:

Thanks you have been very helpful!!!!!!

Lev :

You are very welcome. As I already mentioned - my goal is to provide EXCELLENT service.
Please take a moment to rate my work accordingly.

Customer:

ok

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22837
Experience: Taxes, Immigration, Labor Relations
Lev and 6 other Tax Specialists are ready to help you

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