Trust Tax Rates and Exemptions for 2023 and 2024 (2024)

A trust is a legal entity that holds money and assets for future distribution or management. For example, you might create a trust for your children’s college education, putting money into it which they can withdraw when they go to school. Or you might put the family home into a trust, creating a legal entity that will own the property potentially indefinitely to ensure that it will always stay in the family. The intersection of trusts and taxes can be complicated, but working with a financial advisor can help you clarify relevant issues so you can make good decisions.

Key Takeaways

  • Income from a trust is taxed just like capital gains: in both short-term and long-term fashion, with more favorable rates for the latter.
  • There are a number of different tax deductions a trust may be eligible for.
  • Planning out the tax situation for your trust can pay major dividends down the road.

What Is a Trust?

There are three main kinds of trusts:

  • Simple Trust:This is the most basic and common. It holds assets and distributes all of the income that it makes off those assets to the trust’s beneficiaries. It does not distribute any of its principal.
  • Complex Trust:Generally defined as “not a simple trust,” this trust is considered complex if it distributes less than all of its earned income in a year; if it distributes any of its principal; or if it makes distributions to charities as well as named beneficiaries.
  • Grantor Trust:This trust ismanaged by the individual who established it. They exert a potentially high degree of control over the trust’s assets depending on how the trust was established.

With a grantor trust, the individual who established the trust pays all related taxes on the trust’s funds. Simple and complex trusts, however, have to directly pay taxes on all income, assets and tax events.

Trusts pay federal, state and (when applicable) local taxes. However, this article will only address federal tax rates and exemptions, as the specific rates and regulations surrounding state trust taxation is beyond the scope of this article.

2023 and 2024 Ordinary Income Trust Tax Rates

In 2023, the federal government will tax trust income at four levels.These tax levels also apply to all income generated by estates. Below is a breakdown of these rates and brackets:

  • $0 – $2,900:10%
  • $2,901 – $10,550: 24%
  • $10,551 – $14,450: 35%
  • $14,451+: 37%

The standard rules apply to these four tax brackets. So, for example, if a trust earns $10,000 in income during 2023, it would pay the following taxes:

  • 10% of $2,900 (all earnings between $0 – $2,900) = $290
  • 24% of $7,099 (all earnings between $2,901 – $10,000) = $1,703.76
  • Total Taxes = $1,993.76

In 2024, the federal government will tax trust income at four levels as well, with slightly different rate ranges. Here is the breakdown for the 2024 tax year:

  • $0 – $3,100:10%
  • $3,100 – $11,150: 24%
  • $11,150 – $15,200 35%
  • $15,200+: 37%

2023 and 2024 Long-Term Capital Gains Trust Tax Rates

Short-term capital gains (from assets held 12 months or less) and non-qualified dividends are taxed according to ordinary income tax rates. Qualified dividends and capital gains on assets held for more than 12 months are taxed at a lower rate called the long-term capital gains rate.For trusts, there are three long-term capital gains brackets:

  • $0 – $3,000: 0%
  • $3,000 – $14,649: 15%
  • $14,650+: 20%

Once again, these tax brackets also apply to all income generated by estates. Most trusts generate a majority of their income through investments, but this is not a hard and fast rule. Many manage assets such as buildings and property, for example. Any income generated by rents or rental fees from these assets would be classified as ordinary income, not capital gains.

For the 2024 tax year, the long-term capital gains brackets for trusts are:

  • $0 – $3,150: 0%
  • $3,150 – $15,450: 15%
  • $15,450+: 20%

Primary Tax Deductions for Trusts

There are multiple tax deductions that a trust might qualify for. Here are four categories of primary deductions that concern trusts.

Contributions and Gifts

The contributions made to a trust are generally not subject to income taxes. The person making this contribution has already paid taxes on the money, so the IRS considers this double taxation. By and large, the trust only pays taxes on income it generates from money and assets it holds.

The beneficiary of a trust may have to pay taxes on money that he or she receives. Generally speaking, beneficiaries must pay taxes on any distributions they receive that the trust paid from income that it earned in the current tax year. A beneficiary does not have to pay taxes on any distributions that the trust makes from its principal balance. This is to avoid double taxation. Any money in the trust’s principal has already been taxed. Any money that the trust earns and distributes in the same year, it does not pay taxes on.

When both could apply, distributions from a trust are considered to be first from the current year’s income (and so the beneficiary has to pay taxes on that money) and then from the principal. However, in some cases, a beneficiary can still avoid paying any taxes if he or she has received less from the trust than a lifetime gift tax exemption. In 2023, that is set at $12.92 million for individuals and $25.84 million for couples. For 2024, it increases to $13.61 million for individuals or $27.22 million for couples.

Trustee and Tax Preparation Fees

The trust may deduct reasonable fees for trustee management and tax preparation. However, the trust may only deduct these fees based on the proportion of income that is taxable. For example, say that a trust received $20,000 worth of income in a given year. However, only $10,000 of that income was subject to taxes. The trust could then deduct half of its management and accounting fees.

Charitable Donations

A trust may typically deduct any cash donations made to charity. Since this is a deduction it is nonrefundable, meaning that a trust cannot deduct more in donations than it earned in taxable income.

Income Distribution Deduction

Trusts which make distributions to beneficiaries can separate their income into two segments for tax purposes: the income which the trust keeps for itself, and the income which the trust distributes. The portion of the trust’s income that it distributes is known as the distributable net income, or DNI.

Trusts do not have to pay taxes on the portion of their income that they distribute to beneficiaries in the same calendar year as it was earned. (This is because beneficiaries pay taxes on this income.) Any income that the trust does not distribute in the same year that it is earned is taxed and then added to the trust’s principal.

The DNI is calculated as the trust’s total taxable income, less its capital gains, plus any applicable tax exemption. So:

DNI = Total Taxable Income – Total Capital Gains + Applicable Exemptions

Remember, total capital gains is the sum total of all capital gains offset by any capital losses.A trust can then deduct from its income taxes the amount of any distributions it makes to qualified beneficiaries up to the total DNI.

Bottom Line

Trusts pay taxes on ordinary income and long-term capital gains. While their rates have changed slightly in 2023 and 2024, they remain largely comparable to previous years. It’s important to understand this if you’re thinking about opening a trust or managing your trust without professional help. It’s advised, though, that you find an expert to help you through the process and make sure your trust takes the proper deductions in any owed taxes.

Estate Planning Tips

  • Building an estate plan on your own can be difficult, but a financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Having a will is a great first step to taking care of your family and assets after you’re gone. However, there are many more things that you can include in a comprehensive estate plan. To learn more, check out SmartAsset’s guide to estate planning vs. wills.

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Trust Tax Rates and Exemptions for 2023 and 2024 (2024)


Trust Tax Rates and Exemptions for 2023 and 2024? ›

2023 and 2024 Ordinary Income Trust Tax Rates

What is the trust tax rate for 2024? ›

For details, see Electing Small Business Trusts in the 2023 Instructions for Form 1041. Note: For 2024, the highest income tax rate for trusts is 37%.

What is the standard deduction for a trust in 2023? ›

In many cases, the standard deduction is available for individual taxpayers ($13,850 in 2023). Unless the beneficiary has other sources of taxable income, the only trust income ultimately taxable to the beneficiary will be the amount of income that exceeds the total of the beneficiary's standard deduction.

What are the tax brackets for 2024 and 2023? ›

In 2024, the top tax rate of 37% applies to those earning over $609,350 for individual single filers, up from $578,125 last year. Meanwhile, the lowest threshold of 10% applies to those making $11,600 or less, up from $11,000 in 2023. That means how much you pay in taxes could be higher or lower this year than in 2023.

What are the tax brackets for trusts? ›

Trust tax rates 2021
  • 10% of between $0–$2,650.
  • $265 plus 24% of between $2,651–$9,550.
  • $1,921 plus 35% of between $9,551–$13,050.
  • $3,146 plus 37% of between $13,051+
Feb 7, 2023

What is the federal estate tax exemption for 2024? ›

Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple), representing an increase of $690,000.

What is the federal income tax rate for trusts? ›

$0 – $2,900: 10% $2,901 – $10,550: 24% $10,551 – $14,450: 35%

What is the 2023 2024 tax standard deduction? ›

The 2024 standard deduction was raised to $14,600. That's a $750 increase over 2023. For taxpayers who are married and filing jointly, the standard deduction for the 2024 tax year was increased to $29,200, up $1,500 from 2023.

Do trusts get a standard deduction? ›

However, the standard deduction available to an estate or trust is zero ( Code Sec. 63(c)(6)(D)). In addition, special rules govern the computation of certain deductions and the allocation of deductions between the beneficiaries and the estate or trust ( ¶530— ¶538).

What is the standard deduction for a trust and estate? ›

An estate is allowed a $600 deduction in place of the personal exemption provided by IRC § 151. A trust that is required to distribute all of its income currently (a simple trust) is allowed a $300 deduction; and all other trusts are allowed a $100 deduction (IRC § 642(b)).

What are the new tax changes for 2024? ›

For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.

What are the standard deductions for 2024? ›

Standard deduction 2024
Filing status2024 standard deduction
Married, filing separately$14,600.
Married, filing jointly; qualifying widow/er$29,200.
Head of household$21,900.
Mar 18, 2024

At what age is Social Security no longer taxed? ›

Bottom Line. Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.

How much is the trust exemption? ›

An estate can claim a personal exemption of $600 in determining its taxable income ( Code Sec. 642(b); Reg. §1.642(b)-1). A simple trust ( ¶542)—one that is required to distribute all of its income currently—is allowed an exemption of $300.

What is the trust tax loophole? ›

The trust fund loophole refers to the “stepped-up basis rule” in U.S. tax law. The rule is a tax exemption that lets you use a trust to transfer appreciated assets to the trust's beneficiaries without paying the capital gains tax. Your “basis” in an asset is the price you paid for the asset.

What is the tax rate for irrevocable trusts in 2024? ›

However, as mentioned earlier, irrevocable trusts also come with tax consequences. As of 2024, if an irrevocable trust earns more than $15,200 in income that is not distributed out of the trust in that year, every dollar over that amount is taxed at 37%.

What is the tax change for 2024? ›

The favorable tax rates on long-term capital gains and qualified dividends do not change. But the income thresholds to qualify for the various rates go up for 2024. The 0% tax rate applies at taxable incomes up to $94,050 for joint filers, $63,000 for heads of household and $47,025 for single filers.

How will tax brackets change in 2024? ›

The IRS increased its tax brackets by about 5.4% for each type of tax filer for 2024, such as those filing separately or as married couples. There are seven federal income tax rates, which were set by the 2017 Tax Cuts and Job Act: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Are trusts taxed at a higher rate? ›

While the maximum rates are the same for a trust and an individual, trusts are taxed more aggressively than individuals. Consider that in the 2024 tax year, the top marginal tax rate for a single filer, 37%, begins after $609,350 of ordinary income. A trust is subject to that rate after reaching only $15,200 of income.

Does a trust avoid capital gains tax? ›

In short, yes, a Trust can avoid some capital gains tax. Trusts qualify for a capital gains tax discount, but there are some rules around this benefit. Namely, the Trust needs to have held an asset for at least one year before selling it to take advantage of the CGT discount.

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