The Edgerton Estate generated distributable net income (DNI)this year of $100,000,one-fourth of which was tax-exempt interest,and the balance of which was long-term capital gain.Kyle Edgerton,the sole income beneficiary of the Estate,received a distribution of the entire $150,000 fiduciary income of the entity.How does Kyle report the distribution?

Question

Quizplus · Accepted Answer

Since one-fourth of the distributable net income was tax-exempt interest, the remaining three-fourths, or $75,000, was long-term capital gain. As the beneficiary received the entire fiduciary income of $150,000, he must report that amount on his personal tax return. However, the $25,000 tax-exempt interest is not subject to tax, and only $75,000 of the capital gain is taxed at the long-term capital gains rate. Therefore, the correct way to report the distribution is $75,000 in long-term capital gain and $25,000 in tax-exempt interest.

The Edgerton Estate Generated Distributable Net Income (DNI)this Year of $100,000,one-Fourth