My wife's paents each died within the last couple of years.
They had some real estate properties in a "trust" - we have no other info as yet. There are 5 kids named and equally shared in the trust.
It appears that we now have been informed that we have to add some income/expenses (details coming) on a Schedule E.
Just looking for some basics on this "trust" since we have not really participated by receiving any income or paid out any expenses. ?
Informed by who? On their deaths the heirs should receive a copy of the trust. If a lawyer is handling this you need to have a sit down and go over the trust.
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The Sch_E is part of the estate filing, and I *think* will be handled within the trust or by the executor if there are current bills due. You've just been informed that when the estate is settled, the inc/exp will appear on Sch_E, and this will be part of your tax filing responsibility (since the estate is, I *think*, "yours" as of the date of death, and inc/exp begin to accrue). I'm not an expert on this at all, and if there is real estate, that may or may not be sold as part of the settlement. I'm just trying to give you some clues, and I'm sure an accountant would cover it in five words or less, and an attorney in 5,000 words or more. Call the attorney and ask.
The settlement of estates is prone to abuse and overcharging by providers of various services. If any substantial amount of money is involved, you should perhaps hire your own lawyer to explain these matters to you and to look over what is being done by the executor.
Real estate either generates income, which goes to the trust and is reported to the IRS or loses money which becomes a tax deduction for the trust holders (beneficiaries). There is nothing particularly mysterious about the Schedule E tax form. You can't alwasy deduct the full expense in the year it happened. Deciding how many years to expense something (amortize) is a bit tricky. I couldn't tell you how many year to amortize a toilet or a water heater. The good news is there is no Social Securiy or Medicare tax to pay (unlike your job). Property is depreciated and throws off phantom losses. There is eventual recapture, but you get to keep your money meantime and it is far less than 100% (around 25% depreciation recapture). My accountant does three rentals for me, plus my taxes, for around $500 and I live in a high expense area. I'm guessing you use a property manager (somebody has to be looking after this) and s/he should work with your accountant to do the taxes. Like everybody else, my accountant has data entry clerks and software to do the heavy lifting.
Was it just a bad dream, or did I read somewhere that one of the related ways the comprehensive health care plan would be funded would be to expose investment earnings to Social Security "taxes"?
My thinking was that since we have not physically received any money, then why do we have to report a Sched E ?
I could see if there were expenses that offset the income and the net is a loss - it would be nice to report the loss... BUT - if there is a net income, and it totally stays within the trust to pay bills, then how does that imply we need a Sched E ?
You started this conversation by stating "It appears that we now have been informed that we have to add some income/expenses (details coming) on a Schedule E." Trust income to you is reported on a Sch K-1 which may flow to the Sch E, but to my knowledge, your would have income assigned to you if you don't actually receive any cash. Retained earnings would typically be taxed under the trust itself. Back to the original question raised here, who told you this? Have you been given a copy of the trust? Who is the trustee?
Joe
Somebody needs to file a 2009 tax return for these properties. You need to talk to an accountant now. (Each of the 5 siblings may need to file 20% of each item on Schedule E.) Your feeling that a trust should be tax deferrable doesn't mean much to the IRS.
it's a convoluted situation, with 2 siblings being the Trustees, and an Uncle being 1/3 owner of the properties along with being responsible (or not) for the income/expenses and subsequent "tax reports".
I believe the property is in a "Land Trust" for ownership reasons (2/3 siblings + 1/3 uncle). Beyond that - have no other specifics as yet. We were "told" by the sibling trustee that we all will probably have to report Sched E.
Don't really know the implications of a "normal" trust vs "land" trust and if that changes from the implied Sched K to a simple Sched E ?
I'm merely trying to get some background info, so I even know what to ask, lookup, or research, since this is all new to all of us....
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