Tax Computation

Brackets and the exemption

• updated 2026 2026 (Rev. Proc. 2025-32 check): 10% on the first $3,300; 24% to $11,700; 35% to $16,000; 37% above. The course’s 2019 schedule ($2,600 / $9,300 / $12,750) is stale everywhere it appears. Capital gains: 0% to $3,300, 15% to about $16,250, 20% above; 25% on unrecaptured §1250 gain and 28% on collectibles as for individuals.
• The exemption ($600 estate; $300 trust required to distribute all income currently; $100 other trusts) is taken after the distribution deduction and is not prorated for a short first year; it is prorated only on a change of tax year. The standard deduction is zero (§63(c)(6)(D)).
• Why distribute: a trust reaches 37% at $16,000; a single individual at about $640,600. Every retained dollar above $16,000 costs 37% (plus 3.8% if it is investment income) that the beneficiary might have paid 12% or 22% on. The exceptions are a beneficiary already in the top bracket, a spendthrift, a special-needs beneficiary on means-tested benefits, or an accumulation the document requires.

Alternative minimum tax

• Schedule I of Form 1041, not Form 6251. Same adjustments and preferences as an individual (depreciation differences, private-activity bond interest, the regular-tax NOL swapped for the AMT NOL, tax refunds included in income, incentive stock options) — the charitable deduction is not an adjustment (Study Question 19). The distribution deduction is recomputed on an AMT basis in Part II and the difference goes to the beneficiaries as a K-1 box 12 adjustment, so a beneficiary can pick up an AMT item from a trust that owes no AMT itself.
• Rates 26% and 28%; the exemption is updated 2026 about $31,400 for 2026, phasing out at 25 cents on the dollar above about $104,800 check. An ESBT’s S portion has no exemption. The trust rarely owes AMT because the 37% regular rate arrives so fast; the K-1 adjustment is the practical effect. Minimum tax credit on Form 8801.

Credits

• Foreign tax credit (§642(a), §901(b)(5)): allocated between the fiduciary and the beneficiaries by their shares of the foreign-source income in DNI. Course Example 7.2: DNI $100,000, half foreign-source, $10,000 of foreign tax, $50,000 distributed → $5,000 of the credit goes to the beneficiaries (K-1 box 14 code B), $5,000 stays. Form 1116 is always required for a fiduciary; there is no $300 de minimis election.
• General business credits: allocated by income between the fiduciary and beneficiaries (K-1 box 13); carried back one year and forward twenty; unused carryovers do not pass to beneficiaries at termination — a §196 deduction is available on the final return for some of them.
• Credit for estimated tax assigned to beneficiaries under §643(g) (Form 1041-T): K-1 box 13 code A. Backup withholding on the fiduciary’s 1099s: credited on the 1041 or passed through as box 13 code B.

Net investment income tax

• §1411(a)(2); Form 8960 Part III: 3.8% of the lesser of undistributed net investment income or AGI (computed under §67(e)) in excess of the dollar amount at which the top bracket begins — updated 2026 $16,000 for 2026 (the course says $12,750).
• Net investment income: interest, dividends, annuities, royalties, rents, passive business income, net gains on property, less allocable expenses (fiduciary fees in proportion, state income tax, investment interest). Excluded: distributions from IRAs, §401(a) plans, §403(b), §457(b) governmental plans and Roth IRAs (§1411(c)(5)) — not nonqualified deferred compensation; tax-exempt interest; income from a business in which the trustee materially participates (next page).
• The §1411 distribution deduction is only the net-investment-income share of the distributions (Reg. §1.1411-3(e)): course Example 7.5 — a trust with $25,000 of interest and dividends, $5,000 of gain and $75,000 of IRA income distributes $10,000. The gain is allocated to corpus and is outside DNI, so DNI is $100,000 and the interest and dividends are 25% of it; the §1411 deduction is 25% of the distribution, $2,500, not $10,000. Undistributed NII is $30,000 less $2,500, and the trust owes 3.8% on the lesser of that or its AGI over $16,000. The IRA money is taxed at 37% but never at 3.8%.
• Exempt: grantor trusts (the grantor pays); trusts all of whose unexpired interests are charitable; §501(a) trusts; charitable remainder trusts (Reg. §1.1411-3(b)(3)); HSAs, MSAs, 529s and ESAs; cemetery perpetual-care funds; Alaska Native settlement trusts; foreign estates and trusts. Not exempt: a decedent’s estate; pooled income funds; qualified funeral trusts. A bankruptcy estate uses the $125,000 married-filing-separately threshold (exam Q39). An ESBT reassembles its S portion and non-S portion into one trust for the computation (Reg. §1.1411-3(c)).
• The beneficiary’s side: the NII that rides out on the K-1 is box 14 code E; the beneficiary tests it against his own $200,000 / $250,000 threshold. Code H carries the §1411 adjustment for deductions allocated to NII.

Household employment taxes

• An estate that keeps the decedent’s caregiver, housekeeper or gardener on the payroll — often for the surviving spouse — files Schedule H with the 1041 and reports the tax on Schedule G. The cash-wage threshold is check about $2,800 for 2026. Wages the decedent paid before death and the estate paid after are combined for the threshold (Notice 95-18). W-2s under the estate’s EIN.

Study questions 18–20

• SQ 18. The 37% rate began at $12,750 in 2019 — $16,000 in 2026.
• SQ 19. Charitable contributions are not an AMT item for a trust; the regular NOL, private-activity bond interest and taxable refunds are.
• SQ 20. §401(a), §457(b) governmental and Roth distributions are excluded from NII; nonqualified deferred compensation is not.

Private reference, not client advice. Notes taken from two continuing-education courses: Form 1041: A Practical Guide (Hadges & Zollars, Thomson Reuters Checkpoint Learning, 10 hours, written on 2019 law) and Taxation of Trusts, Estates, and Decedents (DeScherer & Rodda, CeriFi, 2025 printing on 2024 law). Figures and rules brought current to 2026 in October 2026 (P.L. 119-21, Rev. Proc. 2025-32, T.D. 9918). Items tagged check are to be confirmed against primary sources before they are relied on.