1041 Trust Return Generated Alternative Minimum Tax

[tccpg289]

Trust has 1099 with capital gains.

I am entering the capital gains on sch. d.

For some reason, the trust is getting hit with AMT.

I am unsure why AMT  is even relevant, but it appears the capital gains are triggering a limitation on the income distribution deduction.

Can someone assist with how to enter this information so that AMT is not triggered?

[chester]

That could make sense.  "Typically," simple, irrevocable trusts only distribute interest, dividends, and short term capital gains (and sometimes other types of income).  Long term capital gains are "typically" retained by and taxed to the trust.  The computation of Distributable Net Income (DNI) (1041, Page 2, Schedule B) starts with Adjusted total income, but the capital gain is backed out because the Trust is going to retain it and pay taxes on it.

Are you sure that AMT is being calculated, or is Schedule I (Alt Min Tax - Estates and Trusts) being used to compute the income distribution on a minimum tax basis (which will flow to the K-1).

Has Form 8960 been calculated?  Even if the trust is not in AMT it sounds like the gain will trigger Net Investment Income Tax.

Have you read the trust document?

[tccpg289]

Schedule I is being populated/generated by the software, which is creating an alternative minimum tax calculation in Part III.

Edit: I am also entering the capital gains in the section "Enter All Capital Gains Attributable to income whether or not distributed."

[chester]

Where are you making the entry "Enter All Capital Gains Attributable to income whether or not distributed?"

The 1041 I prepared and which I keep referring to in trying to help you, had net cap gains of $95,668 but the amount on Schedule I, Part III, Line 54 is zero (AMT = 0).

Is there an amount on Form 1041, Page 2, Schedule G, Line 1(c)?

[tccpg289]

Yes - there is indeed an amount on 1(c).

Do you have long-term capital gains?

I am entering the capital gains after I drill down on Line 4 in ProSeries. There is a box there to enter capital gains attributable to income.

[chester]

Yes, as I mentioned in my post, cap gains of $95,668.

Form 1041, Page 1, Line 4 should flow from Schedule D, you shouldn't be entering anything there.

Did you complete Schedule D?

I'm out of action until tomorrow...

[BobKamman]

Is this a gain from sale of depreciated property?  I sometimes run across that problem when the AMT basls is not entered on the Asset Entry sheet.

[tccpg289]

Really appreciate your help. It was all gains from brokerage statement and directly entered on Sch. D

[tccpg289]

Thanks it was all gains from brokerage account entered on Sch. D

[chester]

Okay, I think I figured it out.  You haven't been very specific about where you're making entries, but I believe this one is the problem.  You said, "I am entering the capital gains after I drill down on Line 4 in ProSeries. There is a box there to enter capital gains attributable to income."

If you are referring to Sch D, Part III, the fill-in field below Line 19 and underneath Column (3) which reads, "Enter all capital gains attributable to income whether or not distributed," then that may be where the problem lies.  Do NOT make an entry there unless (read the instructions for that field) that specifically applies to your situation, which I wager it does not.

Only you can determine whether or not an entry is required there, but if it is not, delete the entry in that field and your problem will be solved.  No more AMT.

[tccpg289]

Understood, but if I do that, then the capital gains are not distributable

[chester]

You're distributing the capital gains?

[tccpg289]

Yes, the owner/beneficiary specifies. Do you feel that should be re-assessed moving forward?

[chester · Accepted solution]

I'm not going to touch that one (who has the authority to dictate distributions), but then I think what you may be missing are entries on Schedule D, Page 2, Part III, Lines 17 and 18 Column 1 (Beneficiaries). 

Have you made those entries?

[chester]

If there's any doubt as to what's distributable income, let the attorney who wrote the darn thing give you guidance.

[tccpg289]

Thanks for the tip I will check it out!

[tccpg289]

It seems pretty clear based on what was provided to me that it is indeed distributable.

[chester]

Did you solve your AMT problem?

I duplicated your issue using the trust return I'd prepared which has $95k in LT cap gains and solved it as described in my prior post. 

[tccpg289]

Much appreciated!

[George4Tacks]

When you enter the Cost or other basis, enter the same as the AMT Cost or other basis.