Regular Income Tax Rate Is?

Q: I am the successor trustee for a living trust. In the trust is a house which has not been sold since the death of the grantor of the trust. I understand that once the house is sold there will be a capital gains tax to pay that will look at the fair market value on the date of the death of the grantor (the stepped-up cost basis) and will be deducted from the sale price. Is the Capital Gains tax that the trust will pay calculated the same as it would be for an individual? I think it's about 1/2 of what the regular income tax rate is? Am I correct in all my figuring above?

A: -It depends on the terms of the trust. If the income is to be distributed to the beneficiaries, then any gain will pass through to them via a K-1. - 1) What is a K-1? 2) When you say it depends on the terms of the trust...what depends: whether the capital gain will be realized as regular income or whether the Capital gain will be trust capital gain or individual capital gain? -I strong suggest you download a copy of form 1041 and its instructions and look at Publication 559, alll available at the IRS website www.irs.gov For your specific question, the first $2,000 of income retained by the trust is in its 15% tax brcket. If it is Long Term Capital Gains it is taxed at only 5%. The remainder of the gains will be taxed at 15% and ordinary income taxed at 25% and above. The top bracket ends at $10,000 and all excess income retained taxed at 35%. Due to these steep tax brackets trusts usually distribute all their income to their beneficiaries, who are supposedly taxed at lower rates. They usually retain their gains as additions to capital, although it would be advantageous to distribute them to the beneficiaires if the beneficiaries are all in the 15% or lower tax bracket.

Regular Income Tax Rate Is?

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