Chicago, IL · Member since 2016 · 20 posts · 1 vote
I am looking for a little insight on this situation. We have a rental property that is in a land trust. Can beneficiaries take dividends from the rent? if not dividends, what are the beneficiaries options for taking money from the income which is the rent? How is it categorized on your taxes? And how does it affect your taxes at the end of the year?
Any advice would be greatly appreciated,
Kim
Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
9y
@Kim Livingstone What does the Trust Agreement say? Are you the grantor (donor) of the trust? This is a situation where you need a CPA who can help you interpret the Trust agreement. The Trust may say that income is to be distributed annually in which case the Trust would distribute the trust accounting income to the beneficiaries.
Rental Property Investor · Los Angeles, CA · Member since 2016 · 57 posts · 34 votes
9y
Not a CPA but from what I know, the trust typically has an EIN and will have a tax return for the income/expense generated from the property. All trust beneficiaries receive dividend income based on their respective ownership which will be taxed at the dividend income rate (depends on bracket but I don't think it goes over 20%). All beneficiaries will receive a Schedule K-1 from the trust tax return which will be added to their personal tax return.
-Matt
Rental Property Investor · Los Angeles, CA · Member since 2016 · 57 posts · 34 votes
9y
Depends on the cash flow of the property. The trust agreement may also dictate the way payments are made, how much is distributed, and when it happens. The trustee of the trust needs to setup a budget, have a proper reserve for things like operations, maintenance, taxes/tax return, and other expenses and then disperse the remaining funds by percentage ownership.
I would recommend speaking to whoever setup the trust if possible and/or a CPA to get full clarity on your issues.
-Matt
Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
9y
@Kim Livingstone What does the Trust Agreement say? Are you the grantor (donor) of the trust? This is a situation where you need a CPA who can help you interpret the Trust agreement. The Trust may say that income is to be distributed annually in which case the Trust would distribute the trust accounting income to the beneficiaries.
It depends on the reasons for the trust as was indicated. Most people use the trust for anonymity. Is it revocable or irrevocable? What state does it reside in? Etc.
The trust income tax gets to 40% very quickly approximately after $15k.
Many beneficiaries take the income as a pass through if it is a single member entity. If not they distribute it in pro rata basis i.e. If you have 25% beneficial interest you get 25% of the income and the income tax associated with that.
Too many variables to hypothesize. Get help from an attorney and CPA to make sure you understand the goal of the trust and the taxation associated with it.