NIIT in Estate Final Year

Technical topics regarding tax preparation.
#1
Posts:
359
Joined:
12-Feb-2015 8:50am
Location:
Northern New England
Is there ever NIIT at the Estate level in the final year, or is that passed out to the beneficiaries?
 

#2
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
09RoadKing wrote:Is there ever NIIT at the Estate level in the final year, or is that passed out to the beneficiaries?

There is NIIT at the trust/estate level in any and every year, it is not passed out to beneficiaries. It does not apply to distributed net investment income, however.

"The NIIT applies to domestic estates and trusts that have undistributed net investment income and AGI in excess of the threshold amount." The threshold amount for trusts/estates is around $12K last time I looked, indexed for inflation.
 

#3
Nilodop  
Posts:
18759
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
Is OP asking whether the final year return would eliminate the NIIT because the net investment income is distributed? I think that is the case. See the instructions, startingb at the bottom of page 33,
Distributions on Net Investment In- come.
. https://www.irs.gov/pub/irs-pdf/i1041.pdf
 

#4
Posts:
359
Joined:
12-Feb-2015 8:50am
Location:
Northern New England
Nilodop wrote:Is OP asking whether the final year return would eliminate the NIIT because the net investment income is distributed? I think that is the case. See the instructions, startingb at the bottom of page 33,
Distributions on Net Investment In- come.
. https://www.irs.gov/pub/irs-pdf/i1041.pdf


Thank you for your comment. I think that is the case too. Not being any kind of T&E expert, another question I have is what constitutes distribution of investment income. In my case, this is a first and final 1041 for a decedent's estate. There is about $28,000 of investment income, but the deductions exceed that amount by about $5,000. I presume in this situation the investment income is considered to have been distributed, but initial research didn't find much.
 

#5
Nilodop  
Posts:
18759
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
I'm no expert on Travel and Entertainment either; nor on Trusts and Estates. I think I came across the answer to your question yesterday, but that was then and this is now - lunchtime. I never miss it.
 

#6
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
09RoadKing wrote:Not being any kind of T&E expert, another question I have is what constitutes distribution of investment income.

There is an income distribution deduction available for trusts & estate income tax. Form 1041 Line 18. This is pretty basic to Form 1041, if you don't know how it works you really should take a few hours of basic Form 1041 preparation CE. Then look at instructions for line 18 of Form 8960.

It is very likely that in the final year, there would be no undistributed net investment income from a trust/estate.
 

#7
Dennis2  
Posts:
816
Joined:
18-Feb-2016 11:08am
Location:
New York State
Seems to me in the situation described there are excess deductions. I am unable to imagine a scenario where there is net investment income as well...♫
 

#8
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
Dennis2 wrote:I am unable to imagine a scenario where there is net investment income as well...♫

It was stated that there is $28K of investment income, surely a lot of it is net investment income. Do you agree that Form 8960 is required to be filed with this return, based on what we've been told?
 

#9
Posts:
359
Joined:
12-Feb-2015 8:50am
Location:
Northern New England
makbo wrote:
Dennis2 wrote:I am unable to imagine a scenario where there is net investment income as well...♫

It was stated that there is $28K of investment income, surely a lot of it is net investment income. Do you agree that Form 8960 is required to be filed with this return, based on what we've been told?


A colleague who does a lot of T&E returns says net investment income is always zero on the final year of an estate return because it passes through to benes. If no NII, then no NIIT.
 

#10
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
09RoadKing wrote:A colleague who does a lot of T&E returns says net investment income is always zero on the final year of an estate return because it passes through to benes. If no NII, then no NIIT.

That's very sloppy terminology. Distributed net investment income is not the same thing as zero net investment income. Ask your "colleague who does a lot of T&E returns" about whether Form 8960 would be required.
 

#11
Chay  
Posts:
909
Joined:
22-Jun-2018 1:21pm
Location:
Virginia
This is from the instructions to Form 8960:
Who Must File
Attach Form 8960 to your return if your modified adjusted gross income (MAGI) is greater than the applicable threshold amount.
[...]
Application to Estates and Trusts
Domestic estates and trusts. The NIIT applies to estates and trusts that have undistributed net investment income and adjusted gross income (AGI) in excess of the threshold amount. The NIIT is 3.8% of the lesser of:
-The undistributed net investment income for the tax year, or
-The excess, if any, of AGI (as defined in section 67(e)) over the applicable threshold amount.
The applicable threshold amount is the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year. See the instructions for Form 1041, Schedule G, line 1a, and the instructions for Form 1041-QFT, line 13, for the dollar amount at which the highest tax bracket begins for the tax year.

It seems clear that while there is net investment income, the net investment income tax is not assessed in the final year. However, Form 8960 must still be filed.

Isn't that enough to settle all the issues raised in this thread?
Last edited by Chay on 10-Jul-2018 12:28pm, edited 1 time in total.
 

#12
Posts:
359
Joined:
12-Feb-2015 8:50am
Location:
Northern New England
makbo wrote:
09RoadKing wrote:A colleague who does a lot of T&E returns says net investment income is always zero on the final year of an estate return because it passes through to benes. If no NII, then no NIIT.


Ask your "colleague who does a lot of T&E returns" about whether Form 8960 would be required.


This was the crux of our discussion on it. Her position is that 8960 is not required in the final year.
 

#13
Chay  
Posts:
909
Joined:
22-Jun-2018 1:21pm
Location:
Virginia
09RoadKing wrote:Her position is that 8960 is not required in the final year.

It says right at the top of the instructions that you have to file the form if you're over the AGI threshold, and the form itself shows how the distribution deduction allows the taxpayer to arrive at a total NIIT due of $0.
 

#14
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
Nilodop and Dennis2 have already told you what you need. No 8960. Everything is deemed distributed in a final return. The threshold amount is for estates and trust to file an 8960 is $13k ish. There is -0- undistributed income here.

Chay-this is threshold amount for requirements to file 8960. The applicable threshold amount is the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year.

If there were positive net numbers, the numbers go out to the bene's in the final year and are dealt with on their personal return.

Here we have excess deductions on termination. How can there be any positive numbers on the final K-1's?
 

#15
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
Doug M wrote:Here we have excess deductions on termination. How can there be any positive numbers on the final K-1's?

The OP never stated anything about the nature of the deductions, that was an assumption someone else made. Why do you think there would not be any positive numbers on the final K-1s, of a first & last year Form 1041, with $28K of investment income?

I'll back off on the position that Form 8960 is required in this situation. The problem is that AGI for trust/estate does not show up directly anywhere on the Form 1041, most people I'm sure could not do the calculation from memory. My software has a worksheet that I rely on. The income distribution deduction would lower the AGI, probably below the threshold.

Doug M wrote:Everything is deemed distributed in a final return.

Gee, I never heard or read that rule before.
 

#16
Chay  
Posts:
909
Joined:
22-Jun-2018 1:21pm
Location:
Virginia
Doug M wrote:[...]Chay-this is threshold amount for requirements to file 8960. The applicable threshold amount is the dollar amount at which the highest tax bracket in section 1(e) begins for the tax year.

If there were positive net numbers, the numbers go out to the bene's in the final year and are dealt with on their personal return.

Here we have excess deductions on termination. How can there be any positive numbers on the final K-1's?

The threshold amount is in reference to the AGI of the trust or estate, which can still be positive regardless of what effect the distribution deduction has on the final numbers. For 2017, the threshold amount is $12,500. If the total income on line 9, minus:
  1. Trustee Fees
  2. Distribution deduction
  3. Exemption
  4. DPAD
  5. NOL
Is greater than $12,500, then Form 8960 must be filed as usual.

This would happen if the trust or estate has deductions other than those mentioned above in excess of $12,500 that reduce taxable income and distributable net income but don't reduce AGI, such as taxes, interest and the charitable deduction.

So while the statement I made in #11 was not ultimately accurate, it still stands that you don't get out of filing Form 8960 just because it's the final year.
 

#17
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
Why do you think there would not be any positive numbers on the final K-1s, of a first & last year Form 1041, with $28K of investment income?


'Cause I think that line 21 (f1041) is ($5,000). I really don't think there are any assumptions here, as the numbers described by the OP ($28,000 and $33,000) appear somewhere on page 1 of the 1041. Most likely line 9 and 16.
 

#18
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
Chay

Give me an example of undistributed net investment income for the final tax return of a 1041.
 

#19
Chay  
Posts:
909
Joined:
22-Jun-2018 1:21pm
Location:
Virginia
Form 1041
Investment income......$28,000
Real estate tax............$10,000
Charitable deduction....$10,000
Distributed income.......$ 8,000
Exemption..................$ 100
Taxable income = $(100)

Form 8960
Net investment income....$28,000
Charitable deduction........$10,000
Distribution deduction......$ 8,000
Undistributed NII = $10,000

Adjusted Gross income...$19,900
Highest bracket.............$12,500
Difference = $7,400
NIIT = $281
Last edited by Chay on 11-Jul-2018 6:43am, edited 1 time in total.
 

#20
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
The problem is that AGI for trust/estate does not show up directly anywhere on the Form 1041, most people I'm sure could not do the calculation from memory.


AGI can be found on page 24 of the 1041 instructions. It includes the distribution deduction and all the admin expenses. It would most likely be ($5,000). Assuming the $33,000 the OP describes are principally admin expenses.

https://www.irs.gov/pub/irs-pdf/i1041.pdf
 

Next

Return to Taxation



Who is online

Users browsing this forum: dianaf, Google [Bot], Google Adsense [Bot], ManVsTax and 95 guests