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How to calculate taxable income for a trust or estate?

Distributable net income is the limitation on the amount that the trust or estate can deduct with respect to the distribution to the beneficiaries. The calculation for DNI is as follows:

Below is a list of items that are included in gross income and list of items that may be deducted from gross income to arrive at adjusted total income for the trust or estate.

For example, distributions from the Lynn and Larry estate amounted to $10,000 in the current year from the will. The estate had current year totals of estate income $7,000 and estate disbursements of $4,000. The amount of income an estate beneficiary reports from the estate is limited by the estates distributable net income ($7,000 – $4,000 = $3,000). The $7,000 that the beneficiary received in cash over the amount of taxable income is treated as a nontaxable distribution of principal. 


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