Land Trust and taxes - Posted by Rob

Posted by MDonovan on May 10, 2000 at 14:04:52:

The IRS treats all revocable trusts as a pass through entity. That means you file as if you held the property personally. If its multiple beneficiaries, file a K-1 partnership return.

The trustee files form 501-1 Notice of Fiduciary Relationship. You may need to contact the IRS ofice in Illinois, since some IRS offices don’t know what this form is.

Land Trust and taxes - Posted by Rob

Posted by Rob on May 10, 2000 at 12:49:05:

Once the land trust is created, the property is transferred into the trust and the lender is notified, to whom will they send the mortgage interest statement 1099? I assume the trustee? Does the trust or trustee need a federal tax ID # or can the beneficiaries and/or assigns write off that interest personally without it? How is it usually done?

Re: Land Trust and taxes - Posted by Bill Gatten

Posted by Bill Gatten on May 10, 2000 at 21:34:08:

The land trust is “looked through” by the IRS and the beneficiaries file their own taxes as individuals (e.g., 1040?s, Sched C, etc.). The trustee in a land trust clearly has no tax reporting responsibility. However, when the 1098 is sent by the bank to the trustee, it’s is duplicated and mailed to the individual beneficiaries to do as they ought with regard to tax treatment.

It is important that in multiple beneficiary land trusts that the beneficiaries DO NOT file as partners (sorry to contradict another post,. but the courts would love to prove that the transaction is nothing more than a partnership). We recommend that such reporting be done as a Installment Sale form (if there is income), the Settlor reporting income on a Sched. B and balancing it on Sched. A: applying the profit percentage against the principal reduction in the underlying note. The IRS’ opinion (not a letter ruling) is that losses on properties that are in net lease are not deducible, therefore one can show the property on Sched. F as a passive net-leased property–then there is no income, only Depreciation. Since the transaction [a PACTrust] is not deductible until the property is disposed of or re-fi’d.

For the resident bene, we recommend the co-beneficiary trust {specifically the PT] treat in on a Sched A, re. a Qualified Property (163()h)(3). in lieu of an equity interest the owner has a beneficiary interest in the trust (see Tax Court Decision re: Belden (TCM # 95-360).

It is imperative that the co-beneficiary lands trust, if it is to work to its maximum effectivness, never be in the position of being deemed a partnership, corporation, joint venture or association (taxed as a corp.): that’s precisely why our own corporate trustee can’t handle management, and why out collection service can’t charge for it’s services).

Good quesrtion.

ill Gatten