Lyon, a cash basis taxpayer, died on January 15 of the current taxable year. The estate executor made the required periodic distribution of $9,000 from estate income to Lyon's sole heir. The following pertains to the estate's income and disbursements in the current year:
Estate Income
$20,000 Taxable interest
10,000 Net long-term capital gains allocable to corpus
Estate Disbursements
$5,000 Administrative expenses attributable to taxable income
For the current taxable calendar year, what was the estate's distributable net income (DNI)?
a.
$30,000
b.
$25,000
c.
$15,000
d.
$20,000
Explanation
Choice “c” is correct. A trust's distributable net income includes the taxable income of the trust ($20,000 interest income less $5,000 expenses, or $15,000). By definition, it does not include the $10,000 net long-term capital gains allocated to corpus.
Can someone explain to me why in my Becker chapter 4 outline it shows this:
Estate gross income – including cap gains
<Estate deductions> (Ordinary and necessary)
______________________________________
Adj Total Income
+ Adj tax-exempt interest
<Cap gain attributable to corpus>
______________________________________
DNI
But then the answer states the opposite, that it does not include cap gains allocated to corpus.
Why is it not:
20,000 – 5,000 – 10,000 = 5,000 (Yes, I realize this is not an answer choice)
Thanks everyone! I don't know why I find trusts (specifically DNI vs Accounting income) to be so confusing.
REG - Passed
BEC - Passed
AUD - Passed
FAR - Passed!!!! I have my life back.
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