Other Information — 2025 Inst 1041 (PDF)

Question 1 If the estate or trust received tax-exempt income, figure the allocation of expenses between tax-exempt and taxable income on a separate sheet and attach it to the return. Enter only the deductible amounts on the return. Don’t figure the allocation on the return itself. For more information, see Allocation of Deductions for Tax-Exempt Income, earlier.

Report the amount of tax-exempt interest income received or accrued in the space provided below Question 1.

Also, include any exempt-interest dividends the estate or trust received as a shareholder in a mutual fund or other regulated investment company (RIC).

when a section 642(c) deduction is claimed, the amount of the NII deduction allocable to the section 642(c) deduction will be less than the amount reported on Form 1041, Schedule A, line 7 (or on the separate calculation in the case of a pooled income fund).

Beneficiary reporting. In general, the amount of the income distribution deduction (from Form 1041, Schedule B, line 15) that reduces the estate’s or trust’s NII will be the amount of NII that will be taxable to the beneficiaries on their Schedules K-1 (Form 1041).

The Schedule K-1 has code H in box 14 to report the amount of NII distributed to the beneficiary. The amount reported in code H represents an adjustment (either positive or negative) that the beneficiary must use in completing its Form 8960 (if necessary). In the case where the trust’s income distribution deduction allowed in calculating undistributed NII is less than the amount on Schedule B, line 15, then code H will show a negative number that is the difference between the two amounts. In the case of an estate or trust that issues more than one Schedule K-1 for a year, the sum of the amounts reported in code H on all of the Schedules K-1 will be the difference between Schedule B, line 15, and the amount deducted on Form 8960, line 18b, for amounts of NII distributed to a beneficiary.

Tip: The beneficiary’s NII will equal all taxable amounts reported on the Schedule K-1, adjusted by the amount reported in box 14, code H.

Tip: The only instance where code H will be a positive number is when:

38 Instructions for Form 1041 (2025)

Question 2 All salaries, wages, and other compensation for personal services must be included on the return of the person who earned the income, even if the income was irrevocably assigned to a trust by a contract assignment or similar arrangement.

The grantor or person creating the trust is considered the owner if they keep “beneficial enjoyment” of or substantial control over the trust property. The trust’s income, deductions, and credits are allocable to the owner.

If you checked “Yes” for Question 2, see Special Reporting Instructions, earlier.

Question 3 Check “Yes” and enter the name of the foreign country if either (1) or (2) below applies.

The estate or trust owns more than 50% of the stock in any corporation that owns one or more foreign bank accounts.
At any time during the year, the estate or trust had an interest in or signature or other authority over a bank, securities, or other financial account in a foreign country.

Exception. Check “No” if either of the following applies to the estate or trust.

The combined value of the accounts was $10,000 or less during the whole year.
The accounts were with a U.S. military banking facility operated by a U.S. financial institution.

If you checked “Yes” for Question 3, electronically file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), with the Department of the Treasury using FinCEN’s BSA E-Filing System. Because FinCEN Form 114 isn’t a tax form, don’t file it with Form 1041.

Go to FinCEN.gov for more information.

Caution: If you are required to file FinCEN Form 114 but don’t, you may have to pay a penalty of up to $10,000 (or more in some cases).

Question 4 The estate or trust may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, if:

need to be reported if it duplicates information already reported on Form 1098.

Question 6 To make the section 663(b) election to treat any amount paid or credited to a beneficiary within 65 days following the close of the tax year as being paid or credited on the last day of that tax year, check the box. This election can be made by the fiduciary of a complex trust or the executor of a decedent’s estate. For the election to be valid, you must file Form 1041 by the due date (including extensions). Once made, the election is irrevocable.

Question 7 To make the section 643(e)(3) election to recognize gain on property distributed in kind, check the box and see the Instructions for Schedule D (Form 1041).

Question 9 Generally, a beneficiary is a skip person if the beneficiary is in a generation that is 2 or more generations below the generation of the transferor to the trust.

To determine if a beneficiary that is a trust is a skip person, and for exceptions to the general rules, see the definition of a skip person in the instructions for Schedule R (Form 706).

Question 10 A domestic trust that is a specified domestic entity must file Form 8938 along with Form 1041 for the tax year. Form 8938 must be filed each year the value of the trust’s specified foreign financial assets meets or exceeds the reporting threshold. A trust exceeds the threshold amount if the total value of the specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. For more information on domestic trusts that are specified domestic entities, the filing threshold, and the types of foreign financial assets that must be reported, see the Instructions for Form 8938.

A domestic trust that is required to file Form 8938 along with Form 1041 for the tax year must check “Yes” to Question 10.

Question 11a A distribution of S corporation stock by an estate or trust that results in a change of ownership for federal income tax purposes is a triggering event described in Regulations section 1.965-7(c)(3). If the estate or trust transfers less than all of its shares of stock of the S corporation, the transfer will be a triggering event only with respect to the portion of the estate’s or trust’s section 965(i) net tax liability that is properly allocable to the transferred shares. If the person who received the distribution of S corporation stock is an eligible section 965(i) transferee, the estate or trust may enter into a transfer agreement with the eligible section 965(i) transferee to prevent the assessment of the estate’s or trust’s section 965(i) net tax liability in the tax year that includes the triggering event.

The estate or trust must report in column (g) of Form 965-A, Part IV, the transfer out of the section 965 tax liability properly allocable to S corporation shares for which the estate or trust entered into a transfer agreement with an eligible section 965(i) transferee. See the Instructions for Form 965-A for additional information.

It directly or indirectly transferred property or money to a foreign trust—for this purpose, any U.S. person who created a foreign trust is considered a transferor;
It is treated as the owner of any part of the assets of a foreign trust under the grantor trust rules; or
It received a distribution from a foreign trust.

Tip: An owner of a foreign trust must ensure that the trust files an annual information return on Form 3520-A.

Question 5 An estate or trust claiming an interest deduction for qualified residence interest (as defined in section 163(h)(3)) on seller-provided financing must include on an attachment to the 2025 Form 1041 the name, address, and TIN of the person to whom the interest was paid or accrued (that is, the seller).

If the estate or trust received or accrued such interest, it must provide identical information on the person liable for such interest (that is, the buyer). This information doesn’t

Instructions for Form 1041 (2025) 39

Caution: The transfer agreement must be filed within 30 days of the triggering event. See Form 965-D, Transfer Agreement Under Section 965(i)(2), and the related instructions for additional information.

Question 11b If the estate or trust distributed S corporation shares and the estate or trust did not enter into a timely transfer agreement for all shares transferred during the tax year, the transfer of shares not covered by a transfer agreement is a triggering event. See Triggering event under section 965(i), earlier.

The estate or trust may file a consent agreement under section 965(i)(4)(D) to make the election under section 965(h) to pay in installments the triggered section 965(i) net tax liability. See Form 965-E, Consent Agreement Under Section 965(i)(4)(D), and the related instructions for how to file the consent agreement. See Triggered deferred S corporation-related net 965 tax liability under Part I in the Instructions for Form 965-A for how to make the installment election.

Caution: The due date of the original Form 965-E is within 30 days of the triggering event.

Caution: The due date of the election to pay in installments is the due date of the return for the tax year, including extensions. The actual payment of the first installment is due no later than the due date of the return for the tax year without extensions, even if the election is made on a return filed by the extended due date.

Question 12 Check “Yes” if the estate or trust entered into a transfer agreement as an eligible 965(i) transferee.

If, during the tax year, the estate or trust entered into a transfer agreement as an eligible 965(i) transferee, the estate or trust must report the transfer in of that liability on Part IV of Form 965-A. See the Instructions for Form 965-A for additional information.

Question 13 Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins. If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.

Check “Yes” if at any time during 2025, you (a) received (as a reward, award, or payment for property or services); or (b) sold, exchanged, or otherwise disposed of a digital asset (or any financial interest in any digital asset).

Otherwise disposed of any other financial interest in a digital asset.

You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds digital assets.

Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.

Do not leave the question unanswered. You must answer “Yes” or “No” by checking the appropriate box. For more information, go to IRS.gov/VirtualCurrencyFAQs .

How to report digital asset transactions. If, in 2025, you disposed of any digital asset, which you held as a capital asset, through a sale, trade, exchange, payment, or other transfer, check “Yes” and use Form 8949 to calculate your capital gain or loss and report that gain or loss on Schedule D (Form 1041).

If you received any digital asset as compensation for services or disposed of any digital asset that you held for sale to customers in a trade or business, you must report the income as you would report other income of the same type.

Question 14 If the deemed owner of a grantor portion of the ESBT is a nonresident alien, the items of income, deduction, and credit from that grantor portion must be reallocated to the S portion. See Line 4 under Schedule G, Part I, earlier, for how to figure the tax on the S portion of the trust.

Question 15 The S portion of the ESBT must take into account the qualified items of income, gain, deduction, and loss and other items from any S corporation owned by the ESBT, and any qualified items of income, gain, deduction, and loss and other items reallocated to the S portion. See Question 14, earlier. For purposes of determining whether the taxable income of an ESBT exceeds the threshold amount, the S portion and the non-S portion of an ESBT are treated as a single trust. See Regulations section 1.199A-6(d)(3)(vi).