Taxpayer received a Schedule K-1 (Form 1041) with Ordinary Business Income and an Box 14 Adjustment for the same amount. The income is being captured but not the adjustment. How do I capture the adjustment so it correctly reduces the tax liability?

[taxq7474]

Taxpayer received a Sch K-1 (Form 1041) from a Trust with Ordinary Income (Box 6) of $213,368 and Box 14 marked with Code H with an adjustment amount of -$213,368. Code H=Adjustment for net investment income or deduction.  When I key this information into ProSeries, the ordinary income is being factored in but not the adjustment of negative -$213,368.  How do I correctly reflect the adjustment so that it does not throw the taxpayer into an inappropriate tax bracket and create a tax liability? How do I capture the adjustment, so it correctly reduces the tax liability?

[BobKamman]

What is going on here, anyway?  Did the taxpayer receive a distribution of $213K+ ?  The Box 14 adjustment just tells you that it's not subject to Form 8960 tax, not regular income tax.  

[taxq7474]

No, it's not a Distibution.  Income of ~$213k is from Ordinary Business Income. See above for details.

[BobKamman]

Is this the same Delaware Statutory Trust you were asking about a couple weeks ago?  I thought they weren't supposed to get a K-1 anyway.  

[Accountant-Man]

Do you know what the ordinary income really is, like perhaps a 1099-R distribution?

Without the box 14H adjustment, all of the ordinary income from the trust APPEARS to be net investment income, and if it is 1099-R income, it is NOT NII.

Line 1 is still ordinary income, but it is not to be treated as NII on the beneficiary's 1040.

(Sounds like something I would do, and I did, just this past season!)

My trust received an annuity distribution and terminated, distributing everything to beneficiaries. Since all trust K-1 income appears as NII on the 1040, BUT IT SHOULDN'T since it's not all NII, box 14H was used.

FYI, of course, interest, dividends and capital gains are NII coming from the trust, the other income doesn't get 14H adjustment.

It needs to show up on line 7 of the 8960 worksheet and line 7 of the 8960.

[Just-Lisa-Now-]

That amount with Code H just means its not subject to NIIT, it doesnt make it non-taxable.