Question

Peyton Trust, which is a simple trust, distributed $45,000 to its sole beneficiary, Brooke, in the current year. Further, it had the following items of income and expense for the current year.

Interest income from municipal bonds $10,000
Gross income from rental properties 30,000
Operating expenses for the rental properties 5,000
Trust fees allocable to the rental properties 2,000
What is Peyton's income distribution deduction for the current year?
a. $23,000
b. $33,000
c. $40,000
d. $45,000

Answer 1

b. $33,000

Step-by-step explanation:

In order to avoid double taxation, trust are allowed to deduct income distributed to its beneficiaries. In this case, the deduction is equal to the lowest of:

• net income generated by the trust = $10,000 + $30,000 - $5,000 - $2,000 = $33,000 ⇒ THIS IS LOWER
• or the net income distributed = $45,000