Qualified dividends (Form 1041 U.S. Income Tax Return for Estates and Trusts, 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 (Schedule B within Form 1041, Line 11) divided by DNI (Schedule B within Form 1041, Line 7) to figure the beneficiaries’ share qualified dividends.
Per IRS Instructions for Form 1041 and Schedules A, B, G, J, and K-1, on 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 aren't qualified dividends. These include:
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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