Taxes for a trust- can you please help?

Taxes for a trust- can you please help?

Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes

Hey guys, how does taxing a trust works?

Lets say there is a paid off property in a trust that is worth 100K, and brings 1K per month per rent. So its about 12K per year in rent. But, lets say we spend 2 k per year in expenses (property management, fixing, etc), so lets say we get 10k per year in income. (12k rent minus 2k expenses=10k taxable income)

How to figure out what tax bracket the trust should pay taxes in?

Its easy with personal taxes because there are tax brackets for personal income, if you make 100K then you are roughly in a 30% tax bracket.

What about trusts? Do trusts have tax brackets? How does taxing income from trust work?

Thank you

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Greg O'BrienBusiness Member
Accountant · Boston, MA · Member since 2019 · 386 posts · 336 votes
6y

@Mary Jay Nick is correct.  There are a lot of issues you'll want to look over.  One hot button issue with the IRS (depending on the Trust type), the the passive activity rules under 469.  The IRS consistently tries to assert passive treatment to losses from trusts, although courts have disagreed. Definitely important to lay out all the facts and circumstances with your CPA/advisor.

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  • Carl FischerPro Member
    Rental Property Investor · Ambler, PA · Member since 2015 · 2k+ posts · 1k+ votes
    6y

    @Mary Jay

    There are trust tax brackets and they get high very quickly. https://www.thebalance.com/201... Or google irs tax brackets. It’s an eye opener.  Get with a cpa/attorney because trust type also plays a role in different ways to pay taxes. Revocable vs irrevocable etc 

  • Real Estate Agent · Fleetwood, NY · Member since 2018 · 264 posts · 235 votes
    6y

    @Nicholas Aiola maybe you could give @Mary Jay a hand?

  • Nicholas AiolaBusiness Member
    CPA & Investor · New York, NY · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    Thanks, @Joe Aiola

    @Mary Jay As @Carl Fischer mentioned, there are trust tax brackets and they are different than individual tax brackets - the tax rates escalate much more quickly. However, not all trusts are required to file a tax return. For example, revocable grantor trusts do not require separate tax returns; all activity would be reported on the grantor's individual tax return and taxed using individual tax rates.

    You should connect with a CPA who can review the trust document for you to determine the tax filing requirements for the trust.

    Aiola CPA, PLLC550 Reviews
  • Greg O'BrienBusiness Member
    Accountant · Boston, MA · Member since 2019 · 386 posts · 336 votes
    6y

    @Mary Jay Nick is correct.  There are a lot of issues you'll want to look over.  One hot button issue with the IRS (depending on the Trust type), the the passive activity rules under 469.  The IRS consistently tries to assert passive treatment to losses from trusts, although courts have disagreed. Definitely important to lay out all the facts and circumstances with your CPA/advisor.

  • Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    6y

    Wow! You guys opened my eyes! The taxes are so crazy high for trusts!

    Thank you guys all for your help!

  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Mary Jay

    There are so many different types of trusts from revocable trust, irrevocable trust, grantor trust, charitable remainder unitrust.

    Trusts are taxed differently depending on the one that is set up and what the trust document says.

  • Glendale, AZ · Member since 2017 · 1k+ posts · 236 votes
    6y
    Originally posted by @Basit Siddiqi:

    @Mary Jay

    There are so many different types of trusts from revocable trust, irrevocable trust, grantor trust, charitable remainder unitrust.

    Trusts are taxed differently depending on the one that is set up and what the trust document says.

     Thank you! What is the least taxable trust version that you know of? 

  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @Mary Jay

    A grantor trust normally is set up so the trust does not pay any tax.
    Also other trusts where the trustee has the discretion to allocate/distribute to the beneficiary(and does).

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