1041 Complex Trust
I have a complex trust with passthrough K-1's, which one of the K-1's has trade or business loss, rental real estate income, interest, dividends, and oil and gas royalties with deductions relating to the oil and gas income and percentage depletion. When I enter the K-1 information on screen 25, I separate the trade or business loss and the rental real-estate income on two separate K-1 screen 25 entries. The partnership interest is a limited partnership interest. If I put the oil and gas information on either the trade or business K-1 or the rental real estate K-1 input, the oil and gas royalties will go to Schedule E page 1 as well as the deductions relating to the oil and gas income. The percentage depletion is being considered as passive loss and run through the Form 8582 and limited to be deducted on Schedule E page two. The trust document does not require a depletion reserve. There is only one beneficiary of this trust, which 100% of the income is being distributed out.
Why is the percentage depletion being considered passive and the income and related deductions are not. I do not believe this should be considered passive since the IRS looks at it as portfolio income. The only way I can get it to deduct the percentage depletion at the trust level is enter the oil and gas items on another separate K-1 and tell it is not passive.
I can override that I want the percentage depletion to be prorated out to the beneficiaries on screen 9 and I get the results I wanted if I do not enter a separate K-1 input for the oil and gas items.
On a personal return, the oil and gas royalties and related deductions do not get considered when you have other rental real estate losses for the PAL loss limitation, so why does it on a trust.
Appreciate the help in understanding this.
