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Qualified dividends (Form 1041, Line 2b), are split between the beneficiaries and the estate or trust based on the beneficiaries’ share of distributable net income (DNI). TaxAct takes the total amount of qualified dividends times total distributions (Form 1041, Schedule B, Line 11) divided by DNI (Form 1041, Schedule B, Line 7) to figure the beneficiaries’ share qualified dividends.

Per the Form 1041 instructions, page 20:

Line 2b - Qualified Dividends

Enter the beneficiary's allocable share of qualified dividends on line 2b(1) and enter the estate's or trust's allocable share on line 2b(2).

If the estate or trust received qualified dividends that were derived from IRD, you must reduce the amount on line 2b(2) by the portion of the estate tax deduction claimed on Form 1041, page 1, line 19, that is attributable to those qualified dividends. Don't reduce the amounts on line 2b by any other allocable expenses.

Note. The beneficiary's share (as figured above) may differ from the amount entered on line 2b of Schedule K-1 (Form 1041).

Qualified dividends. Qualified dividends are eligible for a lower tax rate than other ordinary income. Generally, these dividends are reported to the estate or trust in box 1b of Form(s) 1099-DIV. See Pub. 550 for the definition of qualified dividends if the estate or trust received dividends not reported on Form 1099-DIV.

Exception. Some dividends may be reported to the estate or trust as in box 1b of Form 1099-DIV but are not qualified dividends. These include:

  • Dividends received on any share of stock that the estate or trust held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock isn't entitled to receive the next dividend payment. When counting the number of days the stock was held, include the day the estate or trust disposed of the stock but not the day it acquired the stock. However, you can't count certain days during which the estate's or trust's risk of loss was diminished. See Pub. 550 for more details.
  • Dividends attributable to periods totaling more than 366 days that the estate or trust received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days the stock was held, include the day the estate or trust disposed of the stock but not the day it acquired the stock. However, you can't count certain days during which the estate's or trust's risk of loss was diminished. See Pub. 550 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule above.
  • Dividends on any share of stock to the extent that the estate or trust is under an obligation (including a short sale) to make related payments with respect to positions in substantially similar or related property.
  • Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.
TIP: If you have an entry on line 2b(2), be sure you use Schedule D (Form 1041), the Schedule D Tax Worksheet, or the Qualified Dividends Tax Worksheet, whichever applies, to figure the estate's or trust's tax. Figuring the estate's or trust's tax liability in this manner will usually result in a lower tax

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