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 $125,000 accounting income of the entity. How does Kyle report the distribution?

Question

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Kyle reports $75,000 as long-term capital gain and $25,000 as exempt interest because the distribution reflects the character of the income in the estate. The estate's DNI consists of $75,000 long-term capital gain and $25,000 tax-exempt interest, which is passed through to Kyle.

The Edgerton Estate Generated Distributable Net Income (DNI) This Year