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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3153
Experience:  EA, CEBS - 35 years experience providing financial advice
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I have inherited $67,500 from a trust and my taxable income

Customer Question

I have inherited $67,500 from a trust and my taxable income is zero.
My social securtiry is not counted and my other income is less than $10,000. I have a small home and the taxes, and mortgage are deductible, which leaves me with a zero income. How much will I have to pay?
Submitted: 7 years ago.
Category: Tax
Expert:  Bill replied 7 years ago.

It depends on the form (check or securities that were distributed to you) of the distribution from the trust and the character (interest, dividends, capital gains, IRA, etc.) of the income that was generated within the trust. The trustee is required to provide you with a K-1(Form 1041) itemizing the amounts and type of income to report on your individual tax return. For example, if the distribution you received was generated from a CD that matured in the trust, then only the interest on the CD would be taxable and this interest amount should be reported on the K-1.


You should contact the trustee to obtain the specific taxable amount as a large portion of the distribution may be income tax-free.


Customer: replied 7 years ago.
I am the trustee and it was all in cash.
Expert:  Bill replied 7 years ago.
If you are the trustee and there was just cash in the trust at all times and it was not invested in an interest bearing account, then none of it would be subject to income taxes. If the cash had been invested in a bank account or money market fund that earned interest then the interest would be taxable to you.
Customer: replied 7 years ago.
At one time this money was in mutual funds. Divided among sixteen people. My share was the $67,500. In order to share this with everyone, my attorney had me put it in a brokerage account. It was then sold and distibuted among everyone. My question is what amount do I have to pay the IRS. My original income as I stated is very low, as Social security is not taxable. I would like to have an amount.
Expert:  Bill replied 7 years ago.
If the mutual funds were held in the trust and were sold then the amount of gain or loss will have to be calculated on each fund and then those gains or losses are netted to determine the amount of gain or loss to report. If the trust was revocable prior to the grantor's death then the fair market value of the funds on the decedent's date of death is generally used for the cost basis. The cost basis of each fund is subtracted from the sales proceeds received from each fund in order to determine the amount of any gain or loss. So depending on the values on the date of death and the amount received from the sales there may be little or no net gain or even a net loss. I would need to know all of those amounts before I could even estimate the amount of income or loss that would be incurred.
Bill and 2 other Tax Specialists are ready to help you
Customer: replied 7 years ago.
Thank You
Expert:  Bill replied 7 years ago.
Thank you for using Just Answer.