trust now owns the Sch E rental property - who reports

[schirallicpa]

An irrevocable trust was established and the apartment house that is normally rented and reported on the Taxpayer's schedule E is now owned by the Trust.  Who reports the Schedule E?  And if the Taxpayer still gets it, does he get the depreciation on the house?  

[Terry D EA]

Even though the trust now owns the rental house, all  income and expenses are reported on the individual taxpayer's return on Sch E as normal. 

[schirallicpa]

That's what I knew from a revocable trust.  Wasn't sure if it was the same for irrevocable.  Thank you Terry!

 

[grandmabee]

I don't think that applies for an Irrevocable trust.  I think it goes on a 1041 

[Lion EA]

If the apartment house was titled into the trust, the trust reports income, expenses, depreciation, etc. Make changes with the mortgage company, insurance company, etc.

[Terry D EA]

This is interesting, I read an article where the taxes in an irrevocable trust as at the grantor's tax level and not the high level of the trust. Because this trust is irrevocable, I now am leaning toward Lion's answer knowing the trust has to file a tax return. 

[Lion EA]

Check that out in the IRCode. Don't trust just any old article. An Irrevocable trust is a separate entity, so I don't think it gets to use the tax rate of the grantor, who is separate from the trust. (Whose rate would you use if a bunch of siblings put an asset into a trust to separate themselves from liability?)

That would be true in a Revocable trust that is NOT separate from the grantor and reports on the grantor's income tax return so, of course, uses the grantor's tax rate. But, don't trust me either, because I do very few trusts anymore!

[jklcpa]

1041

[Lion EA]

Trust Judy! Report on a 1041 at the 1041 rates.

[Abby Normal]

41 minutes ago, Lion EA said:

Trust Judy! Report on a 1041 at the 1041 rates.

Weren't there any distributions to the beneficiaries? Whose bank account was this all being run through? The trust needs its own bank account, in addition to changing the mortgage, and the title to the trust's name. But if this was all run through the individuals bank account, then all the income has been distributed to the individual. Follow the money!

[DANRVAN]

2 hours ago, schirallicpa said:

  Who reports 

Was there a distribution made to the beneficiary during 2019 or with in 65 days after the year end (per the 65 day rule)?

 

[schirallicpa]

I'm not sure who's bank account this was run thru.  I suspect the individual.  

There is a loss on the rental so is a distribution applicable?

 

[Abby Normal]

1 minute ago, schirallicpa said:

I'm not sure who's bank account this was run thru.  I suspect the individual.  

There is a loss on the rental so is a distribution applicable?

 

The distributions will not pass out the loss. The loss will create an NOL inside the trust. Not sure off the top of my head about passive loss rules inside a trust.

[DANRVAN]

19 hours ago, schirallicpa said:

There is a loss on the rental so is a distribution applicable?

The only time a loss is passed through is in the final year of a trust or estate.  However,  under current tax code there is no benefit since it is 2% misc deduction.

 

[Abby Normal]

1 hour ago, DANRVAN said:

The only time a loss is passed through is in the final year of a trust or estate.  However,  under current tax code there is no benefit since it is 2% misc deduction.

 

Capital losses passes out to beneficiaries and are not part of the 2% excess expenses deduction. I've never had a trust with an NOL so I'm not sure if that passes out like capital losses do.

[DANRVAN]

2 hours ago, Abby Normal said:

Capital losses passes out to beneficiaries and are not part of the 2% excess expenses deduction.

That is correct, they retain their character as capital losses but only pass through in the final year of the trust or estate.

The NOLs go into the excess deductions bucket in the final year and are currently not allowed under TCJA.

[Burke]

OP does not disclose whether other assets are in this trust which are income producing, so any rental loss not used to offset other income stays inside the trust and may produce an NOL carryover.  What was the purpose here?  If the rental is the only thing in the trust, why didn't they do an LLC?