Schedule K-1 (Form 1041)

Schedule K-1 (Form 1041) is a tax form that allows the beneficiary of an estate or trust to report their share of income. The form also specifies the beneficiary’s deductions and credits from an estate or trust.

How Does Schedule K-1 (Form 1041) Work?

This form is to be filed by the estate or trust when he or she passes tax obligations to his or her elected beneficiaries. An example of this situation is when a parent owns a real estate property. His trustee shall then be responsible to file the Schedule K-1 for each of the beneficiaries. The filing of this form will depend on two things:

  • Amount of Income Generated by the Estate

Computation of this will be based on the annual gross income of the estate. Annual gross income has to be more than $600 for filing of Schedule K-1 to be required. Any amount lower than the threshold will not be mandatory for filing.

  • Residency Status of Beneficiaries

Regardless of the annual gross income, should the beneficiary be a non-resident alien, filing of Schedule K-1 shall be mandatory.

What Is in a Schedule K-1 Tax Form Inheritance?

The form consists of two pages but the second page is just codes that relate to other information on the form. Part 1 asks for details about the estate or trust. Part 2 is about the beneficiary’s details. Part 3 details the beneficiary’s share of current income, along with deductions and credits.

Where Can I Find a Sample K-1 Tax Form?

Simply click on the link below to download the most current revision of the Schedule K-1 Tax Form. Schedule K-1 (Form 1041)

How to Fill Out a Schedule K-1 Tax Form

Here’s a link to a guide on how to fill out the tax form: Instructions for Schedule K-1 (Form 1041) 

Beneficiary Taxation

Generally, the IRS doesn’t impose any taxes on inheritances except on the income the inheritance produces since the estate is a pass-through entity. However, there are actually states that impose taxes on both inheritance and the income it produces. These states include New Jersey, Nebraska, and Maryland. On the other hand, states like Pennsylvania and South Carolina only impose taxes on inherited income if they exceed $3,000 or in property value that exceeds $5,000. Taxable income will be inclusive of all the income generated by the inheritance after deductions and credits have been claimed. Just like all other regular incomes, taxation will be based on marginal tax rate depending on the appropriate tax bracket. Some of the things that can reduce tax liability for income inherited from an estate may include, but not limited to, depreciation, losses, amortization, and depletion allocations.

The Bottom Line

Schedule K-1 Tax Form Inheritance is a tax form required to be filed when an estate or trust passes down income to their beneficiaries. The general information about the inheritance, as well as the beneficiary’s share of funds are provided in this form. It also specifies the deductions and credits that can be claimed by the beneficiary during tax filing. The most current draft of the Schedule K-1 Tax Form with Instructions can be downloaded from the IRS website.

A trust refers to the arrangement where one person or entity, called a trustee, has complete control over property belonging to another person or entity, known as beneficiary.
Non-resident alien refers to an individual who is not a resident alien or a citizen of the United States.
A pass-through entity is an entity that can legally pass any income or loss it makes to its owners.
Generally, the IRS doesn't impose any taxes on inheritances except on the income the inheritance produces since the estate is a pass-through entity. However, there are actually states that impose taxes on both inheritance and the income it produces.
You may download the form through this link from IRS: https://www.irs.gov/pub/irs-pdf/f1041sk1.pdf

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.