Does a Land Trust Have to File a Tax Return?

A land trust is an agreement between the person who owns property (or properties) and the person they designate to have the property placed in their name. One reason for a land trust is to provide the property owner with privacy. This way the whole world won't be notified that you own property. 

However, does a trust have to file a tax return? Start with our resources (What Is A Land Trust?), then keep reading for the answers you need.

Decedent's Estate

If the land owner is deceased, this is one case where the beneficiary of the land will have to file a tax return on the estate as well as the trust. This is especially true for domestic estates that earned $600 or more for the year of the tax return and if the beneficiary of the estate is not a resident of the United States.

Domestic Trust

The beneficiary will have to file a tax return for a domestic trust in the case that they have made any income that is taxable for the year, made a gross income of $600 or more for the year even if it isn't taxable income, and, just as with the decedent's estate, if the beneficiary is not a legal resident of the United States.

Although the decedent's estate and the domestic trust do have to file a tax return if they meet the requirements stated, the only land trust that does not have to file a tax return is a revocable trust, or what they call a grantor's trust.

How to File a Tax Return for a Decedent's Estate and a Domestic Trust

Since the decedent's estate and the domestic trust need to file a tax return if they have met the requirements stated, the following includes the steps to do so:

  1. Gather Information: Get all of the financial records for the tax return year together.
  2. Determine if Enough Money Was Made: Figure out whether or not the trust has earned more than $600 within the tax year
  3. Download Documents: If they have made more than $600 within the tax return year, go to the IRS website and download two forms; Form 1041 and Schedule K-1.
  4. Check Documents: Ensure you have downloaded the correct Schedule K-1 and that it is the one that can be filed with the 1041 form. This is important because there is more than one version of the Schedule K-1 form.
  5. Report the income: Report income from any tenants that lived on the land. If the tenants still owe money, this is not required to report to the IRS. Only the money they have already paid the land owner should be included.
  6. Report Gains and Losses: Report any gains or losses such as if the land owner sold any portions of the land.
  7. Report extra income: You also need to report extra income the land owner received. This should be reported even if it is not related to the land that is held by the land trust
  8. Add Deductions: Add any of the eligible deductions for the landowner.
  9. Fill out Schedule K-1. Schedule K-1 is for anything given to the beneficiary of the trust. Fill out one copy to go with the 1041 form for the IRS and keep a copy for your records. You will also need to give copies of this to any beneficiary or if there is more than one beneficiary, they will get a copy as well.
  10. Send: Send both forms to the IRS.

Now that this is done, you can wait for the IRS to respond. Make sure you used the Schedule K-1 which goes with form 1041. Also, be sure everyone involved with the land has received a copy of everything you filled out and sent to the IRS.