IRS Schedule K-1 for estate and trust income

April 20, 2021 : H&R Block

An estate or trust required to file Form 1041 (United States Income Tax Return for Estates and Trusts) might pass certain items of income and deductions to its beneficiaries through IRS Schedule K-1. So, if you’re a beneficiary, you must pay tax on your share of income – and you can also claim credits and deductions on that income.  Read on to learn more about the K-1 form, including its definition and K-1 instructions.

Schedule K-1 and Form 1041

If beneficiaries receive the income established from a trust or estate, they must pay income tax on it. An estate or trust that generates income of $600 or more; and estates with nonresident alien beneficiaries must file a Form 1041.

Income received from the trust or estate and deductions and credits is reported to beneficiaries on a K-1.

What is a K-1?

estate taxWhile we may have answered the question, “what is a K-1?” let’s elaborate further.

The estate or trust will send you a Schedule K-1 showing what you must report on your return.

The IRS Schedule K-1 can include:

  • Credits to reduce your taxable income
  • Deductions to reduce your taxable income
  • Investment income, like interest, dividends, and capital gains
  • Passive income, like rental income

How you report the income depends upon the type of income you’re reporting.

Keep in mind, there are other types of K-1s.

  • Schedule K-1 (Form 1065): This is used to report pass-through income to shareholders or partners in a business on Form 1065.
  • Schedule K-1 (1120S): This form is used to report pass-through income to S corporation shareholders in a business on Form 1120-S.

It’s possible to get multiple versions of the Schedule K-1 in the same tax year – the K-1 (1065), the K-1 (1120-S) and K-1 (1041). For example, this would be the case if you were a partner in in a partnership and you received income as the beneficiary of an estate.

K-1 tax form deadline for an estate or trust

A K-1 form is typically received later than when you receive Forms W-2 or 1099.

This is because estates and trusts need extra time to calculate the tax information as they apply to each beneficiary. Due to the additional time needed, the K-1 tax form deadline for calendar year estates and trusts is April 15 each year. (For fiscal year estates and trusts, the K-1 tax form deadline is the 15th day of the fourth month following the close if the estate or trust tax year.)

What to do with a K-1 tax form

If you received a K-1 tax form from a fiduciary, you should use it to help calculate your taxable estate or trust income on Form 1040. A copy of the K-1 tax form should be sent along with your return if your backup withholding is reported on Box 13, Code B.

The fiduciary will file a copy of the form.

Keep a copy of the K-1 tax form if the IRS happens to have questions about the income reported.

K-1 instructions

While you probably don’t need to fill out the form as an individual receiving income from an estate or trust, it’s good to know Schedule K-1 instructions that fiduciaries follow, so you understand how to interpret the form for your own income tax return.

The form is straightforward. It’s a one-page form with three parts.

Part 1: Includes information about the estate or trust, including its:

  • Name
  • Employer Identification Number
  • Name and address of the fiduciary responsible for handling the estate

Part 2: This section contains information about the beneficiary, including their name and address. It also has a box indicating if the beneficiary is a domestic or foreign beneficiary.

Part 3: This section reports the beneficiary’s share of income, credits, and deductions in a tax year. These “tax attributes”, as they are sometimes referred to, are used by the beneficiary to correctly report income of the estate on the beneficiary’s own Form 1040 tax return. These attributes include:

  • Rental real estate income from an estate
  • Interest income
  • Net short- and long-term capital gains
  • Ordinary and qualified dividends
  • Tax credits and credit recapture
  • Tax deductions and adjustments, including alternative minimum tax adjustments, depreciation, depletion, amortization, directly apportioned deductions, estate tax deductions, and final-year deductions
  • Unrecaptured Section 1250 gains

On the back of the K-1, there are instructions for each box of the K-1 and provides descriptions of the codes on the front of the form, these instructions will direct where the beneficiary reports the income on the Form 1040.

Received a Schedule K-1? Get tax help

So, if you need assistance interpreting a Schedule K-1 (Form 1041), we can help. You should make an appointment with one of our knowledgeable tax pros who can help you with an accurate tax return with every tax credit and deduction you deserve.

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