2009 INSTRUCTIONS FOR FORM N-40
STATE OF HAWAII—DEPARTMENT OF TAXATION
AND SCHEDULES A, B, C, D, E, F, G, J, AND K-1
FIDUCIARY INCOME TAX RETURN
(Section references are to the Internal Revenue Code (IRC), as adopted and
incorporated by reference in Chapter 235, Hawaii Revised Statutes (HRS).)
(Publication references are to federal Publications.)
ATTENTION: of tangible personal property or the producing Sunday, or holiday, the due date for the return is
of agricultural products, shall continue after the extended to the next business day.
Hawaii has not adopted the increased expens- seventh year in an amount equal to twenty per-
ing deduction under IRC section 179 (Hawaii limit is Note: Under Hawaii tax law, certain tax credits
cent of the taxes paid during the eighth, ninth, must be claimed within 12 months from the
$25,000) or the bonus depreciation provisions. and tenth tax years. close of the tax year.
Hawaii has not adopted the domestic activities
production deduction under Internal Revenue Code GENERAL INSTRUCTIONS Private delivery services. Hawaii has adopted
the IRC provision to allow documents and payments
section 199. A. Who must use Form N-40.—This form will
delivered by a designated private delivery service to
WHERE TO GET TAX FORMS be used by both resident and nonresident estates
qualify for the “timely mailing treated as timely filing/
and trusts. A return shall be filed by:
paying rule.” The Department of Taxation will con-
Hawaii tax forms, instructions, and schedules may (1) Every estate having for the taxable year gross form to the IRS listing of designated private delivery
be obtained at any taxation district office or from income of $400 or more subject to taxation un- service and type of delivery services qualifying un-
the Department of Taxation’s website at www. der the Hawaii Income Tax Law; der this provision. Timely filing of mail which does not
hawaii.gov/tax, or you may contact the customer
(2) Every trust having for the taxable year any tax- bear the U.S. Post Office cancellation mark or the
service staff of our Taxpayer Services Branch at:
able income, or having gross income of $400 or date recorded or marked by the designated delivery
808-587-4242 or 1-800-222-3229 (Toll-Free).
more subject to taxation under Hawaii Income service will be determined by reference to other com-
CHANGES YOU SHOULD NOTE Tax Law regardless of the amount of taxable petent evidence. The private delivery service can tell
income; you how to get written proof of the mailing date.
The 2009 State Legislature enacted a number
of provisions which may affect a fiduciary’s return. (3) Every nonresident estate or trust having gross Extension of time to file. If you need more time
These include: income of $400 or more (some part or all of to file a fiduciary income tax return, file Form N-100,
which is from sources within Hawaii) regardless Application for Automatic Extension of Time To File
Conformity of the Hawaii Income Tax Law to
of the amount of gross income subject to taxa- Hawaii Return for a Partnership, Trust, or REMIC, for
the Internal Revenue Code, amended as
tion or the amount of taxable income, (i) if any an automatic 6-month extension. File Form N-100
of December 31, 2008. Hawaii has adopted
of the beneficiaries is a resident of Hawaii, or by the regular due date of the fiduciary income tax
many of the provisions of federal laws enact-
(ii) if in the case of a trust, a resident of Hawaii return. Federal Form 7004, Application for Automatic
ing tax provisions in 2008. Descriptions of the
is treated as the substantial owner of any por- Extension of Time To File Certain Business Income
changes adopted by Hawaii may be found in
tion of the trust. Tax, Information, and Other Returns, may not be
the Department’s 2009 Digest of Tax Measures used in lieu of Form N-100. Form N-100 can be filed
which is available on the Department’s website The trustee of a charitable remainder trust shall
and payment made electronically through the State’s
at www.hawaii.gov/tax. file a Hawaii Form N-40, showing the revenues and
Internet portal. For more information, go to www.
expenses of the trust and no tax liability for the trust.
Renewable Energy Technologies Income Tax ehawaii.gov/efile.
Compute the taxable income and enter the amount
Credit has been modified, for systems in-
on line 15 on page 1 as an adjustment to result in no C. Where Form N-40 must be filed.—If you
stalled and placed in service on or after July
taxable income on line 22. Schedules K-1 are to be are enclosing a check or money order with your
1, 2009, to allow the taxpayer to elect to have
attached to the Form N-40. tax return, mail your return with payment to the
the credit be refunded to them. In order to be Hawaii Department of Taxation, P.O. Box 1530, Ho-
refundable, the computed credit amount is re- A beneficiary of an estate or trust, or person
nolulu, HI 96806-1530. If you are not enclosing
duced by 30%. No credit will be available if any treated as the owner of any portion of a trust, who
a payment with your tax return, mail your return to
part of the system is used to fulfill the substi- is taxable upon income thereof under the IRC, shall
the Hawaii Department of Taxation, P.O. Box 3559,
tute renewable energy technology requirement be taxed thereon as herein provided, irrespective of
Honolulu, HI 96811-3559.
for new single-family residential property con- the taxability of the estate or trust or whether it is re-
structed on or after January 1, 2010. quired to make a fiduciary return under this chapter. D. Authentication.—Returns shall be authen-
If all such income consists of income which would be ticated by the original signature of the individual
Capital Goods Excise Tax Credit is not available
taxable under this chapter if received directly by the fiduciary, or by the authorized officer of the organi-
for eligible property placed in service on or af-
beneficiary or person, the beneficiary or person shall zation receiving or having custody or control and
ter May 1, 2009 and before January 1, 2010.
be taxed upon all of it. management of the income of the estate or trust.
Technology Infrastructure Renovation Tax
Note: Form N-40 for 2009 may also be used if: (1) The Paid Preparer’s Information at the bottom of
Credit — For renovation costs incurred on or
the trust or estate has a tax year of less than 12 page 1 of Form N-40 must be signed and completed
after May 1, 2009, in taxable years beginning
months that begins and ends in 2010 and (2) the by the person or in the name of the firm or corpora-
on or after January 1, 2009 and ending before
2010 Form N-40 is not available by the time the tion paid to prepare the fiduciary’s return. Individual
January 1, 2011, the credit claimed is limited
trust or estate is required to file its return. How- preparers may furnish their alternative identifying
to 80% of the taxpayer’s tax liability for the tax-
ever, the trust or estate must show its 2010 tax number for income tax return preparers (PTIN) in-
able year. Any credit that exceeds the 80% limit
year on the 2009 Form N-40 and incorporate any stead of their social security number.
cannot be carried over and is lost.
tax law changes that are effective for tax years be- The fiduciary may authorize the Department of
High Technology Business Investment Tax Credit ginning after December 31, 2009. Taxation to discuss its tax return with its paid prepar-
— For investments made on or after May 1,
A qualified revocable trust which has made the er by checking the “Yes” box at the bottom of page
2009, in taxable years beginning on or after
election for Hawaii purposes under IRC section 2. Checking “Yes” will allow the Department to con-
January 1, 2009 and ending before January 1,
645(a) to be treated and taxed, for income tax tact the paid preparer to answer any questions that
2011, the credit claimed is limited to 80% of the
purposes, as part of its related estate during the may arise during the processing of the return. This
taxpayer’s tax liability for the taxable year. Any
election period, files Form N-40. Federal Form designation does not replace Form N-848, Power of
credit that exceeds the 80% limit cannot be
8855 filed with the Hawaii Department of Taxation Attorney.
carried over and is lost. For investments made
on or after May 1, 2009, no allocations of cred- is used to make this election. E. When and to whom the tax must be paid.—
its to a taxpayer may exceed the amount of the B. When Form N-40 must be filed.—Returns The tax of a trust or an estate must be paid in full
investment made by the taxpayer. must be filed on or before the 20th day of the 4th when the return is filed.
month following the close of the taxable year of the
Enterprise Zone Tax Credit — The credit for qual- The tax may be paid by check or money order
estate or trust. If the due date falls on a Saturday, made payable to the order of Hawaii State Tax Col-
ifying business engaged in the manufacturing
lector. Do not send cash.
Write your Federal Employer I.D. No. on the G. Change in IRC taxable income, required I. Simple and complex trusts.—If the terms of
check or money order. Please draw your check on a reports.— the governing instrument of a trust require that all of
U.S. bank and pay in U.S. dollars. (1) Section 235-101(b), HRS, requires a report to its income (determined under the governing instru-
If there is an amount of tax due and a payment is the Director of Taxation if the amount of IRC ment and Hawaii law) be distributed currently and do
being made with this return, Form N-201V, Business taxable income is changed, corrected, adjust- not provide that any amounts may be paid, perma-
Income Tax Payment Voucher, must be completed ed, or recomputed as stated in (3). nently set aside or used in the taxable year for the
and attached to the return. charitable purposes specified in section 642(c), such
(2) This report must be made: a trust may qualify as a “simple” trust under section
If the estate or trust cannot pay the full amount (a) Within 90 days after a change, correction, 651(a). Such a trust is qualified under section 651(a)
that is owed, you can ask to enter a payment agree- adjustment or recomputation is finally de- only in those taxable years of the trust in which it
ment after you receive a billing notice for the bal- termined. does not distribute to a beneficiary amounts other
ance due. Please be aware that penalty and interest (b) Within 90 days after an amended return is than amounts of income (determined under the
continue to accrue on the unpaid tax amount even filed. governing instrument and local law) required to be
though you have not yet received a billing notice. (c) At the time of filing the next income tax re- distributed currently. Section 651(a) is not applicable
Payments will be accepted and applied to the en- turn, if earlier than set forth in (a) or (b). to estates.
tity’s tax liability; however, to ensure that the entity’s
payments are applied correctly, your check or money (3) A report within the time set out in (2) is required Any trust which does not qualify for the taxable
order must have: (1) the entity’s name as shown on if: year under section 651(a) is treated as a “complex”
the return clearly printed on the check, (2) the en- (a) The amount of taxable income as returned trust under section 661(a). All estates are treated un-
tity’s federal employer identification number (FEIN), to the United States is changed, corrected der section 661(a) in the same manner as “complex”
and (3) the tax year and form number being filed (ex. or adjusted by an officer of the United States trusts.
2009 N-40). other competent authority. J. Income in respect of a decedent. —Sec-
If the fiduciary expects a tax liability of $500 or (b) A change in taxable income results from a tion 691 provides for the inclusion, when received,
more, a declaration of estimated tax must be filed. renegotiation of a contract with the United in gross income of an estate or trust of amounts of
See Form N-5 for more information. States or a subcontract thereunder. gross income which, although attributable to the de-
(c) A recomputation of the income tax imposed cedent, were not properly includable in his or her re-
If you are filing your return after the prescribed by the United States under the IRC results turn for any period up to the date of his or her death.
due date, the refund shown may be limited or disal- from any cause. This includes income from installment obligations.
lowed due to the statute of limitations. In general, a (d) An amended income tax return is made to The same section allows deductions for business
claim for refund or credit for overpaid income taxes the United States. expenses, interest, taxes, etc., to the estate or other
must be filed within three years after the return is person receiving the property to which the deduction
filed for the taxable year, within three years of the (4) The report referred to above shall be in the form
of an amended Hawaii income tax return. pertains.
due date for filing the return, or within two years from
when the tax is paid, whichever is later. For purposes (5) The statutory period for the assessment of any These provisions apply for State purposes if the
of determining whether a refund or credit is allowed, deficiency or the determination of any refund decedent died on or after January 1, 1958. The tax-
taxes paid on or before the due date of the return attributable to the report shall not expire before able status of the income attributable to the decedent
(e.g. taxes withheld from an employee’s pay, or esti- the expiration of one year from the date the De- is the same as if the decedent had lived and received
mated tax payments) are considered paid on the due partment is notified by the taxpayer or the IRS, the income. Thus, if the decedent was a resident his
date of the return, without considering an extension whichever is earlier, of such a report in writing. or her income would be treated as though it had its
of time to file the return. Before the expiration of this one-year period, source in Hawaii even if it had its source elsewhere,
the Department of Taxation and the taxpayer since the fact that the decedent was a resident in it-
F. Penalties and interest.—For failure to file, self makes the income taxable. On the other hand, if
pay or amend as required by law, penalties and in- may agree in writing to the extension of this pe-
riod. The period so agreed upon may be further the decedent’s income had its source outside Hawaii
terest will be added to the tax under section 235-104, and he or she was a nonresident, this income will be
HRS. extended by subsequent agreements in writing
made before the expiration of the period previ- treated as wholly tax exempt.
Late filing of return. The penalty for failure to ously agreed upon. Estate tax or Generation-Skipping Transfer (GST)
file a return on time is assessed on the tax due at tax previously paid to Hawaii, under Chapter 236D,
a rate of 5% per month, or part of a month, up to a H. Amended Return.—If a fiduciary’s return is
filed and then it becomes necessary to make chang- HRS, which was attributable to the inclusion in a de-
maximum of 25%. cedent’s gross estate of the right to receive items of
es to income, deductions, or credits, file an amended
Interest. Interest at the rate of 2/3 of 1% or part return on Form N-40, using the form for the year be- income treated as income in respect of a decedent
of a month shall be assessed on unpaid taxes and ing amended. Check the box on Form N-40 Item F and includable in gross income on the fiduciary re-
penalties beginning with the first calendar day after for an amended return and fill in the return with all of turn, is allowable as a deduction either to the fiducia-
the date prescribed for payment, whether or not that the correct information. Attach a completed Sched- ry or to the beneficiaries, depending on whether or
first calendar day falls on a Saturday, Sunday or legal ule AMD, Explanation of Changes on Amended Re- not such income is paid, credited, or required to be
holiday. turn, to the amended return. See the instructions for distributed. The fiduciary is entitled to deduct only the
Failure to pay tax after filing timely returns. Schedule G lines 11 and 12. If the return is being portion of the Chapter 236D, HRS, tax attributable
The penalty for failure to pay the tax after filing a amended to take an NOL carryback deduction, also to such income, which was not (during the taxable
timely return is 20% of the tax unpaid within 60 days check the NOL box. year in which received) paid, credited, or required to
of the prescribed due date. The 60-day period is cal- be distributed to a beneficiary. Any deductions in this
Hawaii tax forms, instructions, and schedules connection to which beneficiaries are entitled should
culated beginning with the prescribed due date even may be obtained at any taxation district office or
if the prescribed due date falls on a Saturday, Sun- be shown in a statement attached to the return.
from the Department of Taxation’s website at www.
day, or legal holiday. hawaii.gov/tax, or you may contact the customer The credit on Schedule E, line 1 for taxes paid
Underpayment of estimated taxes. The De- service staff of our Taxpayer Services Branch at: to other jurisdictions is limited to taxes imposed on
partment imposes the penalty for the underpayment 808-587-4242 or 1-800-222-3229 (Toll-Free). the fiduciary itself as the taxpayer. Do not take any
of estimated tax as provided in section 235-97(f), credit on Schedule E, line 1 for taxes imposed on the
If you are filing your return after the prescribed decedent even if paid by the fiduciary.
HRS. If applicable, this penalty shall be added to the due date, the refund shown may be limited or disal-
tax for the taxable year in an amount determined at lowed due to the statute of limitations. In general, a K. Income taxable to the grantor or substan-
the rate of 2/3 of 1% per month, or part of a month, claim for refund or credit for overpaid income taxes tial owner.—Report on Form N-40 the part of the
upon the amount of the underpayment for the period must be filed within three years after the return is income that is taxable to the trust. Do not report
of the underpayment. filed for the taxable year, within three years of the on Form N-40 the income that is taxable to the
Generally, if at least: due date for filing the return, or within two years from grantor or another person. Instead, attach a sepa-
when the tax is paid, whichever is later. For purposes rate sheet to report the following:
(1) 60% of the tax shown on the 2009 tax return; or
of determining whether a refund or credit is allowed, • The income of the trust that is taxable to the
(2) 100% of the tax shown on the 2008 return taxes paid on or before the due date of the return grantor or another person under sections 671
is not prepaid, a penalty for not paying enough es- (e.g. taxes withheld from an employee’s pay, or esti- through 678.
timated tax may be charged. mated tax payments) are considered paid on the due • The name, identifying number, and address of
For more information regarding the underpay- date of the return, without considering an extension the person(s) to whom the income is taxable.
ment penalty and special rules for farmers and fish- of time to file the return. • Any deductions or credits applied to this in-
ermen, see Form N-210. come.
On page 1 at the top of Form N-40, write the L. At-risk loss limitations.—Generally, the lents attributable to all rental real estate activities in
name, identification number, and address of the amount the estate or trust has “at risk” limits the which the decedent actively participated is allowed.
grantor(s) or other person(s) in parentheses after loss you can deduct for any tax year. Use federal Any unused losses and/or credits are deemed “sus-
the name of the trust. Form 6198, At-Risk Limitations, to figure the deduct- pended” passive activity losses for the year, and are
The income taxable to the grantor or another ible loss for the year and file it with Form N-40. For carried forward indefinitely.
person under sections 671 through 678 and the de- more information, see federal Form 6198, Publica- If the estate or trust distributes any interest in
ductions and credits applied to the income must be tion 559, and Publication 925, Passive Activity and a passive activity, the basis of the property imme-
reported on the income tax return that person files. At-Risk Rules. diately before the distribution is increased by the
The grantor/trustee for a trust that was created M. Passive activity loss limitations.—Section passive activity losses allocable to the interest; and
in a tax year beginning on or after January 1, 1981, 469 generally limits deductions and credits derived such losses are not allowable as a deduction. See
should not file Form N-40. The grantor/trustee must from passive activities to the amount of income de- section 469(j).
furnish his or her social security number to payors rived from all passive activities. Note: Losses from passive activities are first
of income and report all items of income, deduction, Generally, an activity is deemed to be passive subject to the at-risk rules. When the losses are
and credit from the trust on his or her Form N-11 or if it involves the conduct of any trade or business, deductible under the at-risk rules, the passive ac-
Form N-15. and the taxpayer does not materially participate in tivity rules then apply.
The grantor/trustee for a trust described above, the activity. Passive activities do not include work- Portfolio income is not treated as income from
including grantor trusts created in tax years begin- ing interests in oil and gas properties (as defined in a passive activity, and passive losses and credits
ning before 1981, who has previously filed Form section 469(d)). generally may not be applied to offset it. Portfolio
N-40 and who wants to take advantage of the sim- An estate or trust is treated as materially partici- income generally includes interest, dividends, royal-
plified reporting requirements in the future should pating in an activity if an executor or fiduciary, in his ties, and income from annuities. Portfolio income of
file a Form N-40 for the current year and write on or her capacity as such, is involved in operations of an estate or trust must be accounted for separately,
it “pursuant to section 1.671-4(b), this is the final the activity on a regular, continuous, and substantial and may not be offset by losses from passive activi-
return for this grantor trust.” A grantor/trustee who basis. In the case of a grantor trust, however, mate- ties. See federal Form 8582, Passive Activity Loss
chooses this option must furnish his or her social rial participation is determined at the grantor level. Limitations, to compute the amount of allowable
security number to payors of income for the next Rental activities are considered to be passive activi- passive activity loss.
year and report the trust income on his or her Form ties, whether or not the taxpayer materially partici-
N-11 or Form N-15 for the next year and for future pates.
years. The grantor/trustee must not file Form N-40 In the case of taxable years of an estate ending
for future years. less than 2 years after the date of death of the dece-
dent, up to $25,000 of deductions and credit equiva-
OF SPECIAL INTEREST TO BANKRUPTCY TRUSTEES
Taxation of Bankruptcy Estates If taxable Date Entity Created
The tax shall be:
of An Individual income is: Enter the date the petition was filed; or the date
of conversion to a chapter 7 or 11 case.
Under section 1398(a), a bankruptcy estate is a But Not Of the
separate entity created when an individual debtor Over Over amount Period Covered By Return
files a petition under either chapter 7 or 11 of title over
11 of the United States Code. The estate is admin- $ 0 $ 2,000 1.40% $ 0 A bankruptcy estate is allowed to have a fiscal
istered by a trustee or a debtor-in-possession. If the 2,000 4,000 $28.00 plus 3.20% 2,000 year. The period can be no longer than 12 months;
case is later dismissed by the bankruptcy court, the 4,000 8,000 92.00 plus 5.50% 4,000 and the tax return must be filed on or before the
debtor is treated as if the bankruptcy petition had 8,000 12,000 312.00 plus 6.40% 8,000 20th day of the 4th month following the close of the
never been filed. This provision does NOT apply to 12,000 16,000 568.00 plus 6.80% 12,000 fiscal year.
partnerships and corporations. 16,000
840.00 plus 7.20%
1,128.00 plus 7.60%
Extension of Time To File
Who Must File 30,000 40,000 1,888.00 plus 7.90% 30,000 The trustee or debtor-in-possession for a bank-
Every trustee (or debtor-in-possession) for an in- 40,000 — 2,678.00 plus 8.25% 40,000 ruptcy estate should use Form N-100 to apply for
dividual’s bankruptcy estate under chapter 7 or 11 of an extension of time to file. Form N-100 can be
title 11 of the United States Code, must file a return filed and payment made electronically through the
if the bankruptcy estate has gross income for the tax Federal Employer Identification State’s Internet portal. For more information, go to
year beginning in 2009 of $3,040 or more. No. (FEIN) www.ehawaii.gov/efile.
Form N-40 is used ONLY as a transmittal for Every bankruptcy estate of an individual re- Disclosure of Return Information
Form N-11, Hawaii Individual Income Tax Return quired to file a return must have its own FEIN. You Under section 235-116, HRS, tax returns of indi-
(Resident Filing Federal Return) or Form N-15, Ha- may apply for one on federal Form SS-4, Application vidual debtors who have filed for bankruptcy under
waii Individual Income Tax Return (Nonresident and for Employer Identification Number. The social secu- chapter 7 or 11 of title 11 are, upon written request,
Part-Year Resident). rity number (SSN) of the individual debtor cannot be open to inspection by or disclosure to the trustee.
Complete only the identification area at the top used as the FEIN for the bankruptcy estate.
The returns subject to disclosure to the trustee
of Form N-40. Compute the tax for the bankruptcy
estate using the rates below. Enter the tax on Form Identification Area are those for the year the bankruptcy begins and
Enter the name of the individual debtor on Form prior years. Use Form L-72, Request for Copies of
N-11, line 26 or Form N-15, line 44. Enter on Form
N-40 in the following format: Hawaii Tax Returns (available at any District Tax Of-
N-40, Schedule G, line 1, the total tax from Form
fice), to request copies of the individual debtor’s tax
N-11, line 29 or Form N-15, line 46. Sign and date “John Q. Public Bankruptcy Estate”.
the Form N-40. Beneath, enter the name of the trustee in the fol-
If the bankruptcy case was not voluntary, disclo-
Note: The filing of a tax return for the bankruptcy lowing format:
sure cannot be made before the bankruptcy court
estate does not relieve the individual debtor of his “Mary Kealoha, trustee”. has entered an order for relief, unless the court
or her (or their) individual tax obligations.
If the fiduciary’s address is outside the United rules that the disclosure is needed for determining
States or its possessions or territories, enter the whether relief should be ordered.
information on the line for “City or town, State and
Postal/ZIP Code” in the following order: city, province
or state, postal code, and the name of the country.
Do not abbreviate the country name.
Transfer of Tax Attributes From Amounts paid or incurred by the bankruptcy es- Hawaii has not adopted changes to federal tax
the Individual Debtor to the tate are allowable as deductions or credits; or treat- law which allow a net operating loss in a tax year
ed as wages, as if the individual debtor were still ending in 2001 or 2002, to be carried back five
Bankruptcy Estate engaged in the trades and businesses, or activities, years (versus the current two year carry back pe-
Under section 1398(g), the bankruptcy estate that the individual debtor was engaged in before the riod). A Hawaii taxpayer with a net operating loss in
succeeds to the following tax attributes of the indi- bankruptcy proceedings began. either of these years may carry back the loss only
vidual debtor: Exemption.—A bankruptcy estate is allowed a two years for Hawaii tax purposes.
• Net operating loss carryovers; personal exemption of $1,040. On the termination of the estate or trust, any un-
• Charitable contributions carryovers; Standard deduction.—A bankruptcy estate that used NOL carryover that would be allowable to the
• Recovery of tax benefit items; does not itemize deductions is allowed a standard estate or trust in a later tax year, but for the termina-
• Credit carryovers; deduction of $2,000. tion, is allowed to the beneficiaries succeeding to
• Capital loss carryovers; the property of the estate or trust. See the instruc-
Net operating loss (NOL).—The bankruptcy
• Basis, holding period, and character of as- tions for Schedule K-1, line 8d.
estate may have an NOL for the tax year if the
estate’s administrative expenses exceed the es- Discharge of indebtedness.—In a title 11 case,
• Method of accounting; and gross income does not include amounts that nor-
tate’s gross income. The NOL created may be
• Other tax attributes that may be prescribed by mally would be included in gross income resulting
carried back to each of the 2 preceding tax years,
the Department of Taxation. from the discharge of indebtedness. However,
and carried forward to each of the 20 succeeding
Income and Deductions years. However, if the estate or trust has: any amount excluded from gross income must be
applied to reduce certain tax attributes in a cer-
Under section 1398(c), the taxable income of the • A casualty or theft loss for the tax year, the tain order.
bankruptcy estate is computed in the same manner part of the NOL attributable to casualty or
theft losses may be carried back to the 3 prior Use federal Form 982, Reduction of Tax Attri-
as an individual. The gross income of the bankrupt-
tax years and forward to the 20 following tax butes Due to Discharge of Indebtedness, to show
cy estate includes any income as defined in Bank-
years. the reduction of tax attributes. However, for Hawaii
ruptcy Code section 541. Also included is gain from purposes the following reductions are not operative
the sale of property. To compute gain, the trustee • A farming loss for the tax year, the part of the
and are not allowed as exclusions:
or debtor-in-possession must determine the correct NOL attributable to the farming loss may be
basis of the property. carried back to the 5 prior tax years and for- • General business credit;
ward to the 20 following tax years. • Minimum tax credit; and
• Foreign tax credit carryovers.
HOW TO FILL IN FORM N-40
The specific instructions that follow this section Trusts and estates, may authorize the Depart- contact the paid preparer to answer any questions
explain how all trusts and estates should fill in the ment of Taxation to discuss its tax return with its paid that may arise during the processing of the return.
form. preparer by checking the “Yes” box at the bottom of This designation, however, does not replace Form
page 2. Checking “Yes” will allow the Department to N-848, Power of Attorney.
SIMPLE TRUSTS MAY USE THE FOLLOWING-DESCRIBED SHORT-FORM METHOD OF
COMPLETING THEIR RETURNS
Simple trust without capital gains (or losses). (b) Determine taxable income and tax of fi- If the amount shown on line 18 exceeds the
(a) Reporting Income and deductions. Fill in duciary. If the amount shown on line 18 is not more amount of income required to be distributed currently
page 1, lines 1 through 19 in accordance with spe- than the amount of income required to be distributed less nontaxable income, enter on line 19 the amount
cific instructions. currently, enter on line 19 the amount shown on line of income required to be distributed currently and
18 and enter zero on line 22. Schedule G (Form complete the remainder of page 1.
N-40) need not be completed.
A—SPECIFIC INSTRUCTIONS FOR RESIDENT ESTATES AND TRUSTS
Any intangible income, such as dividends and inter- original issue discount, and income received as a income and expenses including depreciation and
est, shall be excluded from the gross income earned regular interest holder of a Real Estate Mortgage depletion. This may or may not be the same as the
by a resident trust to the extent that, during the trust’s Investment Conduit (REMIC). For taxable bonds amount shown on federal Form 1041.
taxable year, the beneficial interest in the trust is held acquired after December 31, 1987, amortizable Hawaii has not adopted federal bonus deprecia-
by a nonresident beneficiary(ies). This exclusion bond premium is treated as an offset to the inter- tion provisions. If a depreciation deduction is claimed
does not apply, however, to income received from est income instead of as a separate interest de- for Hawaii tax purposes, the fiduciary must: (a) com-
real property held in a land trust formed under Chap- duction. See Publication 550. plete a federal Form 4562 for Hawaii tax purposes
ter 558, HRS. Line 2. Ordinary Dividends.—Enter the fiducia- using the federal depreciation guidelines in effect
All income earned and proceeds derived from stock ry’s share of all taxable dividends received by the before the adoption of the bonus depreciation provi-
options or stock, including stock issued through the estate or trust. sions, (b) attach the completed federal Form 4562
exercise of stock options or warrants, from a quali- Line 3. Income or (losses) from partnerships, to the Hawaii tax return, (c) make the necessary
fied high technology business or from a holding other estates or other trusts.—Enter on line 3 all adjustments to the Hawaii tax return for the depre-
company of a qualified high technology business by income or (losses) from partnerships except the ciation difference between federal and Hawaii, and
an employee, officer or director of the qualified high following: (d) attach to the Hawaii tax return any worksheet
technology business, or investor who qualifies for the showing the computation of the adjustments. The
high technology business investment tax credit is ex- • Interest (enter on line 1) fiduciary must also keep records of the differences in
cluded from income. • Ordinary Dividends (enter on line 2) the asset’s depreciable basis for federal and Hawaii
• Capital gain or (loss) (enter on Schedule D tax purposes.
For tax years beginning after 2007 and ending before Form N-40).
2013, the gain realized by a fee simple owner from • Ordinary gain or (loss) (enter on Schedule For a trust, divide the deductions for amortiza-
the sale of a leased fee interest in units within a con- D-1). tion, depreciation, and depletion between the fi-
dominium project, cooperative project, or planned duciary and the beneficiaries as specified in the
unit development to the association of owners under Attach a copy of federal Schedule E, Supplemen- trust instrument. If the trust instrument does not so
chapter 514A or 514B, HRS, or the residential coop- tal Income Schedule, to the return. specify, divide the deductions on the same basis as
erative corporation of the leasehold units is exempt Line 4. Rent and royalty income or (loss).— the trust instrument provides for dividing the income
from Hawaii income taxation. Enter the net rent and royalty income or loss on between the fiduciary and the beneficiaries. For an
Line 1. Interest income.—Enter the fiduciary’s line 4. Attach federal Schedule E, Supplemental estate, divide the deductions for amortization, de-
share of all taxable interest income including any Income Schedule, to show the fiduciary’s share of preciation, and depletion between the estate and the
beneficiaries in the same way the estate income is by the allocable portion attributed to tax-exempt Generally, net investment income is the excess
allocated to each. See federal Regulations sections income. However, see the Exception below. The of investment income over investment expenses. In-
1.642(e)-1, 1.642(f)-1, 1.167(h)-1, and 1.611-1(c) for allocable amounts to be included on lines 10 vestment expenses are those expenses (other than
more information about the division of these deduc- through 16 are determined as follows: interest) allowable after application of the 2% floor on
tions. If the estate or trust has a loss from an activity, 1. Determine the percentage of tax-exempt in- miscellaneous itemized deductions.
see “At-Risk Loss Limitations” and “Passive Activity come to gross income.—Divide the total tax- The amount of investment interest deduction
Loss Limitations” discussed earlier. exempt income received by the total of all items may be limited. Use Form N-158, Investment Inter-
Attach federal Form 4562, Depreciation and of gross income (including tax-exempt income) est Expense Deduction, to compute the allowable
Amortization, to explain any depreciation, and amor- included in distributable net income. investment interest deduction.
tization deduction. Attach a separate computation for 2. Determine the excludable amount of each spe- Any disallowed investment interest expense is al-
any depletion deduction. cific deduction.—Multiply the percentage of lowed as a carryforward to the next tax year. See
Note: An estate or trust cannot make an election tax-exempt income by each specific deduction. section 163(d) and Publication 550, for more infor-
under section 179 to expense certain depreciable 3. Determine the amount deductible on lines 10 mation.
business assets. through 16.—Subtract the excludable amount If the allowable part of the excess investment in-
Line 5. Net business and farm income or (loss).— of each specific deduction from the specific de- terest expense is deductible, write “Form N-158 at-
Enter the net profit or loss from business and farm- duction and enter the balance on the appropri- tached” on line 10. Then add the deductible interest
ing during the tax year. Attach federal Schedule ate line. figured on Form N-158 to the other types of deduct-
C, Profit or Loss from Business or Profession, to For more information, see Publications 550 ible interest and enter the total on line 10.
report the business income or loss. Attach federal and 559. Personal interest is not deductible. This in-
Schedule F, Farm Income and Expenses, to report cludes interest paid on:
the farm income or loss. Complete all information EXCEPTION. Expenses for royalties and other
on federal Schedules C and F that applies to the income derived from any patents, copyrights, and • Revolving charge accounts.
estate or trust. See the instructions for lines 4 and trade secrets which are excluded from net income • Personal notes for money borrowed from a
15 for more information on dividing the deductions are now deductible for a qualified high technology bank, credit union, or another person.
for amortization, depreciation, and depletion be- business. • Installment loans on personal property.
tween the fiduciary and the beneficiaries. Accrued expenses.—Generally, an accrual basis • Taxes.
Line 6. Capital gain or (loss).—Enter from Sched- taxpayer can deduct accrued expenses in the tax Line 11. Taxes.—Enter any deductible taxes paid
ule D (Form N-40) the gain or loss from the sale or year that: (1) all events have occurred that deter- or accrued during the tax year that are not de-
exchange of capital assets. mine the liability; and (2) the amount of the liability ductible elsewhere on Form N-40. State and local
can be figured with reasonable accuracy. However, sales taxes are not deductible. Instead, they are to
Line 7. Ordinary gain or (loss).—Enter from all the events that establish liability are treated as be treated as part of the cost of the property upon
Schedule D-1 the gain or loss from the sale or occurring only when economic performance takes acquisition, or as a reduction in the amount real-
exchange of property other than capital assets place. There are exceptions for recurring items. ized upon disposition.
and also from involuntary conversions (other than See section 461(h).
casualty or theft). For more information, see the Deductible taxes include:
instructions for Schedule D-1. Line 10. Interest.—Enter any deductible interest • State and local income or real property tax.
paid or accrued that is not deductible elsewhere
Line 8. Other Income.—Enter the total taxable on Form N-40. Do not include interest on a debt Nondeductible taxes include:
income not reportable elsewhere. State the nature that was incurred or continued in order to buy or • Federal income and excise taxes.
of the income. Attach a separate sheet if neces- carry obligations that yield tax-exempt interest. If • Customs duties.
sary. unpaid interest is due related persons, see Publi- • State and local sales taxes.
Examples of income to be reported on line 8 cation 545, Interest Expense. • Federal estate taxes, but see line 19 and Gen-
are: Fully deductible interest includes: eral Instruction J.
• Wages and salaries received by the decedent’s (1) interest paid or accrued on indebtedness in- Line 12. Fiduciary fees.— Enter the total
estate that are income in respect of a decedent. curred in connection with the conduct of a trade deductible fees paid to the fiduciary for
See Publication 559 for more information. or business; administering the estate or trust during the tax
• The estate’s or trust’s share of aggregate in- year.
come or loss that is ordinary income if the es- (2) any investment interest (subject to limitations);
Line 13. Charitable deduction.—Enter the total
tate or trust is a shareholder of an S corpora- (3) any “qualified residence interest”; or from Schedule A (Form N-40) line 6 or 7(c).
tion. Also state the name and FEIN of the cor- (4) any interest payable under section 6601 on any
poration. Report capital gain income, dividend Line 14. Attorney, accountant, and return
unpaid portion of the estate tax attributable to preparer fees.—Enter the deductible attorney,
income, etc., on other appropriate lines. the value of a reversionary or remainder inter-
• The estate’s or trust’s share of taxable income accountant, and return preparer fees paid for the
est in property, or an interest in a closely held estate or trust during the tax year.
or (loss) if the estate or trust is a residual business for the period during which an exten-
holder of a REMIC. You should receive federal sion of time for payment of such tax is in effect. Line 15. Other deductions NOT subject to the
Schedule Q (Form 1066) and instructions from 2% floor.—Use Schedule C (Form N-40) to list
the REMIC for each quarter. See the federal Interest paid or accrued by an estate or trust on all authorized deductions that are not deductible
instruction for Schedule E for reporting require- indebtedness secured by a qualified residence of a elsewhere on Form N-40.
ments, and attach federal Schedule E. beneficiary of an estate or trust is treated as “quali-
fied residence interest” if the residence would be a Special instructions for charitable remainder
• Any part of a total distribution shown on federal trusts. Compute the taxable income and enter the
Form 1099-R, Statement for Recipients of Total qualified residence (i.e., the principal residence or
the second residence selected by the beneficiary) if amount on line 15 as an adjustment to result in no
Distributions From Profit-Sharing, Retirement taxable income on line 22.
Plans, Individual Retirement Arrangements, owned by the beneficiary. The beneficiary must have
Insurance Contracts, etc., that is treated as or- a present interest in the estate or trust or an interest Include on Schedule D (Form N-40) as losses on
dinary income. For more information, see the in the residuary of the estate or trust. See Publication capital assets, any losses on worthless bonds and
separate instructions for Form N-152, Tax on 936, Limits on Home Mortgage Interest Deduction, similar obligations and nonbusiness bad debts.
Lump-Sum Distributions. for an explanation of the general rules for deducting See Publication 550 for more information on ex-
home mortgage interest. penses of producing income.
Also see Miscellaneous Taxable Income, in Pub-
lication 525, Taxable and Nontaxable Income for See section 163(h)(3) for a definition of “qualified Bond premium(s).—The rules for amortizing
more information. residence interest” and limitations on indebtedness. bond premiums are different for taxable bonds and
Generally, “investment interest” is interest (includ- tax-exempt bonds.
Deductions ing amortizable bond premium on taxable bonds ac- For taxable bonds acquired before 10/23/86:
Allocation of deductions for tax-exempt in- quired after 10/22/86, but before 1/1/88) that is paid
• You may elect to amortize the premium.
come.— All deductions entered on lines 10 or accrued on indebtedness that is properly allocable
to property held for investment. Investment interest • Only the fiduciary may make the election for
through 16 must include only the fiduciary’s share
does not include any “qualified residence interest,” or the estate or trust.
of deductions related to taxable income. If the es-
interest that is taken into account under section 469 • The basis must be reduced if you elect to am-
tate or trust has tax-exempt income, the amount
in computing income or loss from a passive activity. ortize.
included on lines 10 through 16 must be reduced
For tax-exempt bonds: • The amortization of bond premium under sec- In the above example:
• You must amortize the premium. tion 171. AGI = 35,000 - 2,000 - DNI - 80
• You may not deduct the amortization of pre- • Estate taxes in the case of income in respect of Since the value of line 19 is not known because
mium from income. a decedent under section 691(c). it is limited to the DNI, you are left with the
• The basis must be reduced by the amortization For more exceptions, see section 67(b). following:
of the premium. For estates and trusts, the AGI is computed by AGI = 32,920 - DNI
For more information, see section 171 and Pub- subtracting the following from total income (line Substitute the value of AGI in the equation:
lication 550. 9): AMID = 1,500 - (.02(32,920 - DNI))
If you claim a bond premium deduction for the (1) the administration costs of the estate or trust The equation cannot be solved until the value of
estate or trust, figure the deduction on a separate (the total of lines 12, 14, 15, and 16 to the ex- DNI is known. The DNI can be expressed in terms
sheet and attach it to this return. tent they are costs incurred in the administra- of the AMID. To do this, compute the DNI using the
Casualty and theft losses.—Use federal Form tion of the estate or trust) that would have not known values. In this example, the DNI is equal to
4684, Casualties and Thefts, to report casualty and been incurred if the property were NOT held by the total income of the trust (less any capital gains
theft losses. the estate or trust; allocated to corpus; or plus any loss from line 4);
(2) the income distribution deduction under section less total deductions from line 17 (computed with-
If you have any sales, exchanges, or involuntary 651 or 661 (line 19);
conversions (other than casualty or theft) of prop- out regard to any miscellaneous itemized deduc-
(3) the amount of the exemption (line 20); and tions); less the AMID.
erty used in a trade or business, or any involuntary (4) other deductions claimed on lines 10 through
conversions (other than casualty or theft) of certain 15 that were incurred in the conduct of a trade Thus, DNI = (line 9) - (line 17 column (b) of Sched-
capital assets, use Schedule D-1. or business, or the production of income. ule D (Form N-40)) - (line 17) - (AMID)
NOL deduction.—An estate or trust is allowed Allowable administration costs are those costs Substitute the known values:
the NOL deduction under section 172. In comput- incurred with the administration of the estate or trust DNI = 35,000 - 20,000 - 2,000 - AMID
ing the NOL, exclude that portion of the income and which would not have been incurred if the property DNI = 13,000 - AMID
deductions attributable to the grantor under sections were not held in such estate or trust. These adminis-
671 through 678. Also, the charitable contribution de- Substitute the value of DNI into the equation to
tration costs are not subject to the 2% floor. solve for AMID:
duction under section 235-2.45(a)(2), HRS, and the
income distribution deductions under sections 651 For those estates and trusts whose income dis- AMID = 1,500 - (.20(32,920-(13,000-AMID)))
and 661 are not allowed. tribution deduction is limited to the actual distribution, AMID = 1,500 - (.02(32,920 - 13,000 + AMID))
and NOT the distributable net income (DNI), (i.e., the AMID = 1,500 - (658 - 260 + .02 AMID)
The estate or trust is allowed the carryback and net income distribution is less than the DNI) when
carryforward period for the NOL deduction. AMID = 1,102 - .02 AMID
computing the AGI, use the amount of the actual AMID = 1,080
Hawaii has not adopted changes to federal tax distribution. DNI = 11,920
law which allow a net operating loss in a tax year For those estates and trusts whose income dis- AGI = 21,000 (i.e., 32,920 - 11,920)
ending in 2001 or 2002, to be carried back five years tribution deduction is limited to the DNI (i.e., the ac-
(versus the current two year carry back period). A tual distribution exceeds the DNI), the DNI must be Note: The income distribution deduction is equal
Hawaii taxpayer with a net operating loss in either of computed taking into account the allowable miscel- to the lesser of the distribution ($17,500) or the
these years may carry back the loss only two years laneous itemized deductions (AMID) after applica- DNI ($11,920).
for Hawaii tax purposes. tion of the 2% floor. In this situation there are two Enter the value of AMID on line 16 (the DNI
For more information, see Publication 536, Net unknown amounts: the AMID; and the DNI. should equal line 9 of Schedule B) and complete the
Operating Losses, and Form N-109, Application for The following example illustrates how an alge- rest of Form N-40 according to the instructions.
Tentative Refund. If you claim an NOL deduction for braic equation can be used to solve for these un- Line 18. Adjusted total income or (loss).—If you
the estate or trust, figure the deduction on a separate known amounts: are filing for a year other than the final year, and
sheet and attach it to this return. line 17 is more than line 9, you may have an NOL.
The Malcolm Smith Trust, a complex trust,
Fiduciary’s share of amortization, depreciation, earned $20,000 of dividend income, $20,000 of Use Form N-109, Application for Tentative Refund,
and depletion not claimed elsewhere.—If you cannot capital gains, and a fully deductible $5,000 loss from to determine whether you have an NOL that you
deduct the amortization, depreciation, and depletion XYZ partnership (chargeable to corpus) in 2008. The can carry back or forward.
as rent or royalty expenses on federal Schedule E, or trust instrument provides that capital gains be added If you are filing for the final year, and the amount
as business or farm expenses on federal Schedules to corpus. 50% of the fiduciary fees were allocated on line 17 is more than the amount on line 9, then
C and F, itemize the fiduciary’s share of the deduc- to income and 50% to corpus. The trust claimed a you have excess deductions. Excess deductions can
tions on Schedule C. Then include them on line 15. $2,000 deduction on line 12 of Form N-40. The trust only be distributed to a beneficiary on the final return
Itemize each beneficiary’s share of the deductions incurred $1,500 of miscellaneous itemized deduc- of the estate or trust. For more information, see the
on the appropriate line of Schedule K-1 (Form N-40). tions (chargeable to income), which are subject to the instructions for Schedule K-1, line 8.
See the instructions for Schedule K-1 for more in- 2% floor. There are no other deductions. The trustee
formation, including the rules for dividing the deduc- Line 19. Income distribution deduction.—If
made a discretionary distribution of the accounting this trust is other than a “Simple Trust” or “Pooled
tions between the fiduciary and the beneficiaries. income of $17,500 to the trust’s sole beneficiary. Income Fund,” complete Schedule B on page 2.
Restricted deductions.—For the special rules on Since the actual distribution can reasonably be However, if line 18 is equal to or less than zero and
real property construction period interest and taxes expected to exceed the DNI, the trust must compute no distributions were actually made or available on
for trade or business and activities conducted for the DNI, taking into account the allowable miscella- demand to the beneficiaries in the tax year, then
profit, see Publication 535, Business Expenses. neous itemized deductions, to determine the amount do not complete Schedule B.
For information on unpaid expenses due related to be entered on line 16. Cemetery perpetual care fund.—On line 19, de-
persons, see Publication 550. The trust also claims an exemption of $80 on duct the amount, not more than $5 per gravesite,
For the rules on the tax year for which a deduc- line 20. paid for maintenance of cemetery property. Write
tion is claimed, including the limit for expenses paid To compute line 16, solve the equation below: the number of gravesites to the right of the entry
in advance, see Publication 538. space for line 19. Also write “Section 642(i) trust” in
AMID = total miscellaneous itemized deduc- parentheses after the trust’s name at the top of Form
For the limit on deductions for certain farming tions - (.02(AGI))
syndicates, see Publication 535. N-40. You do not have to complete Schedule B of
In the above example: (Form N-40) and Schedule K-1 (Form N-40).
Line 16. Allowable miscellaneous itemized de- AMID = 1,500 - (.02(AGI)) Line 20. Deduction for personal exemption.—
ductions subject to the 2% floor.—Miscellaneous An estate is allowed a deduction of $400. A trust
In all situations, use the following equation to com-
itemized deductions are deductible only to the ex- which, under its governing instrument, is required
pute the AGI:
tent that the aggregate amount of such deductions to distribute all of its income currently, is allowed
exceeds 2% of adjusted gross income (AGI). AGI = (line 9) - (the total of lines 12, 14, and a deduction of $200; all other trusts are allowed a
15 to the extent they are costs incurred in the
The term “miscellaneous itemized deductions” deduction of $80.
administration of the estate or trust that would
does not include deductions relating to: Note: No exemption is allowed on the final return of
have not been incurred if the property were
• Interest under section 163. NOT held by the estate or trust) - (line 19) - an estate or trust. Also, qualified funeral trusts are
• Taxes under section 164. (line 20) not allowed a deduction for a personal exemption.
Schedule A — Page 2 applicable local law, do not reduce income by any nonresident estate or trust, income which is non-
Treatment of charitable losses (such as losses from the sale or exchange taxable because it is derived from property owned
of property). In the case of a nonresident estate outside Hawaii or from other sources outside Ha-
contributions; computation of or trust, enter on line 2(b) the result obtained by waii) entering into distributable net income.
charitable deduction. multiplying line 1 by the total of all income which Line 2(b).—In the case of a nonresident estate
is nontaxable because it is derived from property or trust, enter the amount of income which is non-
Subject to certain limitations, an estate or trust owned outside Hawaii or from other sources out- taxable because it is derived from property owned
(other than a simple trust) shall be allowed a de- side of Hawaii but which is included in income of outside Hawaii or from other sources outside
duction for any amount of gross income which pur- the current year, under the governing instrument Hawaii, adjusted in the same manner as the tax-
suant to the terms of the governing instruments is, or Hawaii law, and dividing by the total of all the exempt income. Include capital gains which are
during the taxable year, paid or permanently set income items included in income of the current paid, credited, or required to be distributed to ben-
aside for a purpose specified in section 170(c), or year determined as above stated. The nonresident eficiaries but are not taxable to the nonresident
is to be used exclusively for religious, charitable, estate or trust should include, as income which is estate or trust because it is derived from property
scientific, literary, or educational purposes, or for nontaxable because of source outside Hawaii, the owned outside Hawaii.
the prevention of cruelty to children or animals, or capital gains from property owned outside Hawaii
for the establishment, acquisition, maintenance, if the capital gains are allocable to income. Line 5. Long-term capital gains distributed for
or operation of a public cemetery not operated for charitable purposes.—Figure the amount to en-
Line 4.—Enter the total of all net short-term capi- ter on line 5 as follows: Multiply line 1 of Sched-
profit. This deduction is not subject to any percent- tal gain and net long-term capital gain of the cur-
age limitation if the charitable contributions are to ule A by a fraction; the numerator of which is the
rent year that is: amount of long-term capital gains that are includ-
be used exclusively in Hawaii (unless the limita-
tions of section 681 apply). Under Chapter 235, • Allocable to corpus or ed in the accounting income of the estate or trust
HRS, the deduction is the sum of (a) the amount • Paid or permanently set aside for charitable (i.e., not allocated to corpus) AND are distributed
to be used exclusively in Hawaii and (b) the excess purposes; and to charities; the denominator of which is all items
of the total contributions over the amount of con- • Not included on line 1. of income (including the amount of such long-term
tributions used exclusively in Hawaii. The amount Line 5.—Enter the total of deductible amounts capital gains) included in DNI.
determined in (b) is subject to the same limitations paid or permanently set aside for charitable pur- Line 6. Short-term capital gains distributed for
applicable to contributions made by individuals. poses from gross income of a prior tax year (and charitable purposes.—Figure line 6 in the same
These limitations are computed as follows: (1) the for which no charitable deduction was claimed in manner as line 5, except the numerator of the frac-
amount actually paid within the taxable years to the prior tax year). Attach a statement to show the tion includes only short-term capital gains that are
a church, educational organization, or hospital, details. included in the accounting income of the estate or
qualified under section 170(b)(1)(A) but not in ex- trust and distributed to charities.
cess of 50% of taxable income (page 1, line 22, Schedule B — Page 2 Line 10.—If you are filing for an estate, enter -0-.
computed without any charitable contributions de- Income distribution deduction. If you are filing for a simple or a complex trust,
duction on line 13 or the exemption on line 20),
plus (2) any other amount actually paid other than General Instructions enter the income for the tax year determined un-
der the terms of the governing instrument and ap-
a charitable contribution to which section 170(b) plicable Hawaii law. Do not include extraordinary
The term “distributable net income” (DNI) limits
(1)(A) applies shall be allowed as a deduction to dividends or taxable stock dividends determined
the deductions allowable to estates and trusts for
the extent that the aggregate of such contribution under the governing instrument and applicable
amounts paid, credited, or required to be distrib-
does not exceed the lesser of: (a) 20% of the tax- Hawaii law to be attributable to corpus.
uted to beneficiaries and is used to determine how
able income (page 1, line 22, computed without
any charitable contribution on line 13 or exemption
much of an amount paid, credited, or required to Lines 11 and 12
be distributed to a beneficiary will be includable in Do not include any:
on line 20), or (b) the excess of 50% of the tax- his or her gross income.
able income (page 1, line 22, computed without • Amounts deducted on an earlier year’s return
any charitable contribution or exemption on line Separate share rule.—If a single trust has more that were required to be distributed in the ear-
20) for the taxable year over the amount of chari- than one beneficiary, and if different beneficia- lier year.
table contributions qualifying for the 50% deduc- ries have substantially separate and independent • Amount that is properly paid or credited as a
tion ceiling. shares, their shares are treated as separate trusts gift or bequest of a specific amount of money
for the sole purpose of determining the DNI allo- or specific property. (To qualify as a gift or be-
“Charitable contributions” means any amount of cable to the respective beneficiaries. If the sepa- quest, the amount must be paid in three or few-
gross income which is paid, permanently set aside, rate share rule applies, figure the DNI allocable to er installments.) An amount that can be paid or
or used in such manner as to qualify for the chari- each beneficiary on a separate sheet and attach credited only from income is not considered a
table contributions deduction (except for the special the sheet to this return. For more information, see gift or bequest.
limitation in Chapter 235, HRS). section 663(c) and related regulations. • Amount paid or permanently set aside for char-
Line-by-Line Instructions Line-by-Line Instructions itable purposes or otherwise qualifying for the
Line 1.—Enter on this line the full amount paid or Line 1.—Enter the amount shown on page 1, line Line 11.—Enter income of the estate or trust that
permanently set aside for the purposes described 18, computed by using Schedule A, line 6, for page is required to be distributed currently to all benefi-
above out of the current year’s income. This does 1, line 13. If the amount is a loss, enter zero on line ciaries, whether it is distributed or not. The govern-
not include capital gains allocable to corpus, but 1, Schedule B, unless the loss is attributable to the ing instrument and Hawaii law determine the items
does include capital gains which are treated as in- capital loss limitation rules under section 1211(b). of income and whether an amount must be distrib-
come under the governing instrument and Hawaii If the loss is attributable to the section 1211(b) uted currently. If the governing instrument requires
law. Capital gains reported on Schedule D (Form rules, enter on line 1, Schedule B, the smaller of that stated amounts be paid to a beneficiary and
N-40), which are allocable to corpus, should be the net loss from line 18 of page 1, Form N-40, or that these amounts may come from either income
entered on line 4. the loss from line 6 of page 1, Form N-40. or corpus, include on line 11 any part of these
Line 2.—This line provides for an adjustment of Line 2(a).—Enter the amount of tax-exempt inter- amounts paid from the current year’s income.
the charitable contributions attributable to income est and other nontaxable income received, less: Line 12.—Enter other amounts actually paid, cred-
of the current year (line 1), so that the charitable de- (i) the amount of tax-exempt income shown on ited or required to be distributed to beneficiaries in
duction will not include contributions attributable to Schedule A line 2(a); and (ii) any amounts which, the tax year, whether from income or corpus.
tax-exempt interest or other nontaxable income. In but for the provisions of section 265, would be de-
the absence of specific provisions in the governing ductible in respect of disbursements, expenses, Unless a section 643(e)(3) election is made,
instrument, enter on line 2(a) the result obtained losses, etc., of the trust or estate, directly or indi- the value of all noncash property actually paid,
by multiplying line 1 by the total of all tax-exempt rectly allocable to such income. The amount of the credited, or required to be distributed to any ben-
interest and other income which is nontaxable ir- indirect disbursements, etc., allocable to a tax-ex- eficiaries after June 1, 1984, is the smaller of:
respective of source, included in income of the empt income is that amount which bears the same (1) The estate’s or trust’s adjusted basis in the
current year (under the governing instrument and ratio to the total disbursements, etc., of the trust property immediately before distribution, plus
Hawaii law), and dividing by the total of all the in- or estate not directly attributable to other items of any gain or minus any loss recognized to the
come items included in income of the current year income as the total tax-exempt income received estate or trust on the distribution (basis of ben-
(under the governing instrument and Hawaii law). bears to the total of all the items of gross income eficiary), or
In computing the total of all items of income under (including tax-exempt income and, in the case of a
(2) The fair market value of such property. This rule To report sales or exchanges of property other been sold to the beneficiary at its fair market value
does not apply to any noncash property distrib- than capital assets, including the sale or exchange of (FMV). The distribution deduction is the property’s
uted in satisfaction of a specific sum of money. property used in a trade or business and involuntary FMV. This election applies to all distributions made
If a section 643(e)(3) election is made by the fidu- conversions (other than casualties and thefts), see by the estate or trust during the tax year, and once
ciary, then the amount entered on line 12 will be Schedule D-1 and related instructions. made may be revoked only with the consent of the
the fair market value of the property. If property is involuntarily converted because of a IRS.
Line 13. Total distributions.—Add lines 11 and casualty or theft, use federal Form 4684, Casualties Note that section 267 does not allow a deduc-
12 and enter the total on line 13. If line 13 is more and Thefts. tion for any loss from the sale of property on which a
than line 10 and you are filing for a complex trust, Section 1256 contracts and straddles are report- trust makes a section 643(e)(3) election. In addition,
complete Schedule J (Form N-40) and file it with ed on federal Form 6781, Gains and Losses From when a trust distributes depreciable property, section
Form N-40 unless the complex trust has no previ- Section 1256 Contracts and Straddles. 1239 applies to deny capital gains treatment on the
ously accumulated income. gain to the trust if the trust makes a section 643(e)
Note: All income earned and proceeds derived (3) election.
Line 14.—In computing the income distribution from stock options or stock, including stock issued
deduction for beneficiaries, the estate or trust is through the exercise of stock options or warrants, Exchange of “like-kind” property.—In most
not allowed a deduction for any item of DNI that is from a qualified high technology business or from cases, no gain or loss is recognized when prop-
not included in the gross income of the estate or a holding company of a qualified high technology erty held for productive use in a trade or business
trust. Thus, for purposes of computing the allow- business by an employee, officer or director of or for investment is exchanged solely for property
able income distribution deduction, the DNI (line the qualified high technology business, or inves- of a “like-kind” to be held either for productive use
9) is computed without regard to any tax-exempt tor who qualifies for the high technology business in a trade or business or for investment. See sec-
interest. investment tax credit is excluded from income. tion 1031. However, if a trust exchanges “like-kind”
property with a “related person” (see discussion
If tax-exempt interest is the only tax-exempt in- For tax years beginning after 2007 and ending be- below), and before 2 years after the date of the
come included in the total distributions (line 13), and fore 2013, the gain realized by a fee simple own- last transfer which was part of the exchange the
the DNI (line 9) is less than or equal to line 13, then er from the sale of a leased fee interest in units related person disposes of the property, or the
enter on line 14 the amount from line 2(a). within a condominium project, cooperative project, trust disposes of the property received in ex-
If tax-exempt interest is the only tax-exempt or planned unit development to the association of change from the related person, then the original
income included in the total distributions (line 13), owners under chapter 514A or 514B, HRS, or the exchange will not qualify for nonrecognition. See
and the DNI is more than line 13 (i.e., the estate or residential cooperative corporation of the lease- section 1031(f) for exceptions.
trust made a distribution that is less than the DNI), hold units is exempt from Hawaii income taxation.
Report these transactions on Schedule D or
then compute the adjustment as follows: Capital asset.—Each item of property held by the Schedule D-1 whichever is applicable. If you use
Multiply line 2(a) by a fraction; the numerator of estate or trust (whether or not connected with its Schedule D, identify in column (a) the property dis-
which is the total distributions (line 13), and the trade or business) is a capital asset except: posed of. Enter the date of acquisition in column (b)
denominator of which is the DNI (line 9). Enter • Inventoriable assets or property held primarily and the date of exchange in column (c). Write “like-
the result on line 14. for sale to customers; kind exchange” in column (d) and enter the adjusted
If line 13 includes tax-exempt income other • Depreciable or real property used in a trade or basis in column (e). Enter zero in column (f). Also
than tax-exempt interest, figure line 14 as follows: business; complete and attach federal Form 8824. See the
• Certain copyrights, literary, musical, or artis- Schedule D-1 instructions for more information.
From tax-exempt income included on line 13, sub- tic compositions, letters or memorandums, or
tract the total of: Related persons.—Do not deduct a loss from the
similar property; sale or exchange of property directly or indirectly
(1) the charitable contribution deduction allocable • Accounts or notes receivable acquired in the between any of the following:
to such tax-exempt income, and ordinary course of a trade or business for ser-
(2) expenses allocable to tax-exempt income. To vices rendered or from the sale of inventori- • A grantor and a fiduciary of a trust;
compute the expenses allocable to tax-exempt able assets or property held primarily for sale • A fiduciary and a fiduciary or beneficiary of an-
income, divide tax-exempt income by total in- to customers; other trust created by the same grantor;
come. Multiply the result by expenses not di- • Certain U.S. Government publications not pur- • A fiduciary and a beneficiary of the same trust;
rectly allocable to any item of income. chased at the public sale price; or
• Certain “commodities derivative financial in- • A trust fiduciary and a corporation of which
MULTISTATE TAX COMPACT ACT.—Any taxpayer, more than 50% in value of the outstanding
other than a corporation, acting as a business en- struments” held by a dealer;
• Certain hedging transactions entered into in stock is owned directly or indirectly by or for
tity in more than one state who is required by the the trust or by or for the grantor of the trust.
Hawaii Income Tax Law to file a return and whose the normal course of a trade or business; and
• Supplies regularly used in a trade or business. • An executor of an estate and a beneficiary of
only activities in this State consist of sales and that estate, except when the sale or exchange
who does not own or rent real estate or tangible You may find additional helpful information in is to satisfy a pecuniary bequest (i.e., a be-
personal property and whose annual gross sales the following publications that are available from the quest of a sum of money).
in or into the State during the tax year is not in ex- IRS:
cess of $100,000 may elect to report and pay a tax Items for special treatment.—The following
Publication 544, Sales and Other Dispositions of items may require special treatment:
of .5% of such annual gross sales. Taxpayers who Assets.
elect the foregoing shall file Form N-310. • Wash sales of stock or securities (section
Publication 551, Basis of Assets. 1091).
Schedule C — Page 4 Explanation Short Term or Long Term—Separate the capital • Gain or loss on options to buy or sell (section
of deductions. gains and losses according to how long the estate 1234).
or trust held or owned the property. The holding • Certain real estate subdivided for sale that may
Itemize in Schedule C the deductions for interest period for short-term capital gains and losses is 1 be considered a capital asset (section 1237).
and taxes, and other deductions claimed on page year or less. The holding period for long-term capi- • Gain on disposition of stock in an interest
1, lines 10, 11, 12, 14, 15, and 16. If the space tal gains and losses is more than 1 year. Property charge domestic international sales corpora-
provided on the form is insufficient, attach a sepa- acquired by a decedent’s estate from the decedent tion (section 995(c)).
rate schedule. and sold or otherwise disposed of within 1 year is • Gain on the sale or exchange of stock in cer-
Instructions for Schedule D considered as held for more than 1 year. tain foreign corporations (section 1248).
• Sale of stock received under a qualified public
(Form N-40) — Gains and losses When you figure the length of the period the es-
tate or trust held property, begin counting on the day utility dividend reinvestment plan. See Publica-
from the sale or exchange of after the estate or trust acquired the property and tion 550 for details.
• Transfer of appreciated property to a political
capital assets. include the day the estate or trust disposed of it. Use
organization (section 84).
the trade dates for the date of acquisition and sale
General Instructions of stocks and bonds on an exchange or over-the- • Disposition of market discount bonds (section
counter market. 1276).
Use Schedule D (Form N-40) to report gains and • Gains from certain constructive ownership
losses from the sale or exchange of capital assets Section 643(e)(3) election—For noncash prop- transactions. Gain in excess of the gain the
by an estate or trust. erty distributions, a fiduciary may elect to have estate or trust would have recognized if the es-
the estate or trust recognize gain or loss in the tate or trust had held a financial asset directly
same manner as if the distributed property had
during the term of a derivative contract must be Lines 6 and 15. Section 235-7(a)(13), HRS, Part IV. Computation of capital loss limitation.—
treated as ordinary income. See section 1260 Short-Term and Long-Term Capital Gain If the sum of all the capital losses is more than
for details. Exemption.—For tax years beginning after 2007 the sum of all the capital gains, then these capital
and ending before 2013, the gain realized by a fee losses are allowed as a deduction only to the ex-
Line-by-Line Instructions simple owner from the sale of a leased fee inter- tent of the smaller of the net loss or $3,000.
Lines 1 and 8. Short-term and long-term capi- est in units within a condominium project, coop- Part V. Computation of capital loss carryovers
tal gains and losses.—Enter all sales of stocks, erative project, or planned unit development to from 2009 to 2010.—Complete Part V to figure
bonds, etc. the association of owners under chapter 514A or the capital loss carryover. A capital loss carryover
514B, or the residential cooperative corporation of may be carried forward indefinitely. Capital losses
If you are reporting capital gain from a lump-sum the leasehold units is exempt from Hawaii income
distribution, see the instructions for Form N-152 for keep their character as either short-term or long-
taxation. term when carried over to the following year. To the
information on death benefit exclusion and the Fed-
eral estate tax. Use lines 6 and 15 to reduce the estate or trust’s extent the capital loss subject to the limitation is
capital gain for these amounts reported on other deducted from ordinary income, consider the net
If more space is needed, Federal Schedule D-1 lines of Schedule D. short-term capital loss as deducted first. If this is
may be used and attached. the final year of the estate or trust, also enter on
For purposes of this exemption, “fee simple own-
Column (d). Gross sales price.—Enter either the er” means the person who owns the fee simple title to line 8b, Schedule K-1, if short-term, or on line 8c,
gross sales price or the net sales price from the the land which is leased, including a life tenant with a Schedule K-1, if long-term.
sale. On sales of stocks and bonds, report the remainder over, vested or contingent, and a holder of Part VI. Tax Computation Using Maximum Capi-
gross amount as reported to the fiduciary by the fi- a defeasible estate, and the holder’s heirs, succes- tal Gains Rate.—
duciary’s broker on federal Form 1099-B or similar sors, legal representatives, and assigns. “Leased fee
statement. However, if the broker advised the fidu- Line 46.—To compute the regular tax, see the in-
interest” means all of the interests of the fee owner, structions for Form N-40, Schedule G line 1.
ciary that gross proceeds (gross sales price) less lessor, and all legal and equitable owners of the land
commissions and option premiums were reported which is leased, other than the lessee’s interest as Line 47.—If the tax, using the Maximum Capi-
to the IRS, enter that net amount in column (d). defined by chapter 516, HRS. “Legal and equitable tal Gains Rate (line 45), is less than the regular
Column (e). Cost or other basis, as adjusted, owners” means the fee simple owner and all persons tax (line 46), then enter the amount from line 47
plus expense of sale.—Enter the cost or adjusted having legal or equitable interests in the fee or in the on Form N-40, Schedule G line 1, and check the
basis of the property sold or exchanged, plus any lessor’s leasehold estate, including mortgagees, de- “Schedule D (Form N-40)” box.
expense of sale, such as broker’s fees, commis-
sions, etc. The basis of property acquired from or
velopers, lienors, and sublessors, and their respec-
tive heirs, successors, legal representatives, and
Schedule E — Page 3
passing from a decedent is generally the FMV at assigns. “Condominium project” means a real estate Nonrefundable credits.
the date of death. For more information, see Pub- condominium project; a plan or project whereby a Note: The amount of a specific credit actually re-
lication 551. condominium of two or more units located within the ceived may be limited by the amount of tax liabil-
Caution: The special federal election for capital condominium property regime have been sold or ity and the amount of other credits allowed. See
assets acquired in tax years beginning before leased or are offered or proposed to be offered for specific credit forms for limitations. Any taxpayer
sale or lease. “Cooperative project” means a real es-
January 1, 2001 (election under section 311 of claiming the ethanol facility tax credit may not
tate cooperative housing corporation project; a plan
the Taxpayer Relief Act of 1997) was not avail- claim any other Hawaii income tax credit.
able for Hawaii tax purposes. As a result, the or project whereby two or more apartments located
in a building owned by a cooperative housing corpo- Line 1. Credit allowed for taxes paid to a state
basis of assets for which an election was made
ration have been leased or are offered or proposed or foreign country by a resident estate or
on a taxpayer’s 2001 federal tax return will be
to be offered to be leased. trust.—If a resident estate or trust derived income
different for federal and State tax purposes. from sources without Hawaii and paid a net income
Lines 2 and 9. Installment sales.—If the estate or Line 11. Capital gain distributions.—Enter any tax to a state or foreign country, a credit may be
trust sold property at a gain this year and will re- amounts shown on federal Form 2439, Notice to claimed against the Hawaii income tax. A credit is
ceive a payment in a later tax year, use the install- Shareholder of Undistributed Long-Term Capital allowable against the Hawaii income tax only if the
ment method and file federal Form 6252, Install- Gains, that represent the estate’s or trust’s share tax paid to a state or foreign country was based
ment Sale Income, unless you elect not to do so. of the undistributed capital gains of a regulated in- on net income of the same taxable year and only
Also use federal Form 6252 to report any pay- if the income taxed by the state or foreign country
ment received in 2008 from a sale made in an earlier Line 17, column (a). Beneficiaries’ net short- was derived from sources without Hawaii. Intan-
year that was reported on the installment method. term capital gain or loss.—Enter the amount gible personal property of a resident estate or trust
of net short-term capital gain or loss allocable has a situs within Hawaii, therefore, income from
If the estate or trust elects not to use the install- to the beneficiary or beneficiaries. Except in the such property is derived from within and not from
ment method, report the full amount of the gain on a final year, include only those short-term capital without Hawaii and no credit may be allowed for
timely filed return (including extensions). losses that are taken into account in determining taxes paid to a state or foreign country based on
If the estate or trust files federal Form 6252, enter the amount of gain from the sale or exchange of such income. (However, in the rare case of a sepa-
on Schedule D (Form N-40), line 2, the short-term capital assets that is paid, credited, or required rate business situs there may be an exception to
capital gain from installment sales from federal Form to be distributed to any beneficiary during the tax this rule.) To obtain a credit against the Hawaii tax,
6252. Enter on Schedule D (Form N-40), line 9, the year. See Regulations section 1.643(a)-3 for more a copy of the return filed with a state or foreign
long-term capital gain from installment sales from information about allocation of capital gains and country must be furnished as well as a receipt or
federal Form 6252. losses. other evidence to substantiate payment of the tax.
Lines 4 and 13. Short-term and long-term capi- Except in the final year, if the losses from the If any taxes paid are at any time refunded, the Ha-
tal gains from qualified high technology business sale or exchange of capital assets are more than the waii State Tax Collector must be notified promptly
stock options.—All income earned and proceeds gains, all of the losses are allocated to the fiduciary of such refund. The Hawaii Income Tax Law allows
derived from stock options or stock, including and none are allocated to the beneficiaries. no credit to a nonresident estate or trust for the
stock issued through the exercise of stock options taxes paid to a state or foreign country. Limitations
Line 17, column (b). Fiduciary’s net short-term
or warrants, from a qualified high technology busi- of credit—see Department of Taxation Rules.
capital gain or loss.—Enter the amount of the net
ness or from a holding company of a qualified high short-term capital gain or loss allocable to the fidu- Line 2. Carryover of the Energy Conservation
technology business by an employee, officer or ciary. Include any capital gain paid or permanently Tax Credit.— A fiduciary may claim this credit
director of the qualified high technology business, set aside for the charitable purpose specified in only if the fiduciary has a carryover of this credit
or investor who qualifies for the high technology section 642(c). from a prior year. Attach Form N-323 and enter the
business investment tax credit is excluded from fiduciary’s carryover on Schedule E, line 2.
income. Losses on sales or dispositions of stock Line 17, column (c). Total.—Enter the total of
the amounts entered in columns (a) and (b). The Line 3. Enterprise Zone Tax Credit.—A quali-
obtained through options or warrants from a quali-
amount in column (c) should be the same as the fied enterprise zone business is eligible to claim a
fied high technology business may be deducted.
amount on line 7. credit for a percentage of taxes due the State at-
These losses are not added back to income. tributable to the conduct of business within a zone
Use lines 4 and 13 to reduce the estate’s or trust’s Line 18. Net long-term capital gain or loss.— and a percentage of the amount of unemployment
capital gain for these amounts reported on other Treat the net long-term capital gain or loss on line insurance premiums paid based on the payroll of
lines of Schedule D. 18 in the same manner as the net short-term capi- employees employed at the business firm estab-
tal gain or loss on line 17. lishments in the zone. The applicable percentage
is 80% the first year; 70% the second year; 60% credits to a taxpayer may exceed the amount of For more information, see Form N-323. Attach
the third year; 50% the fourth year; 40% the fifth the investment made by the taxpayer. Other limits Form N-323 to the income tax return on which the
year; 30% the sixth year; and 20% the seventh may apply. The credit is subject to limitations and credit is claimed. Enter the fiduciary’s share of the
year. For qualifying costs trusts engaged in the recapture requirements. Investments made after nonrefundable portion of the credit on line 10.
manufacturing of tangible personal property or the June 30, 2004, must be certified in order to claim Line 11. Carryover of the Residential Construc-
producing of agricultural products, the credit shall this credit for the investment. tion and Remodeling Tax Credit.—A fiduciary
continue after the seventh year in a amount equal The tax credit allowed shall be claimed against may claim this credit only if the fiduciary has a car-
to 20% of the taxes paid during the eighth, ninth, the net income tax liability for the taxable year. A ryover of this credit from a prior year.
and tenth tax years. This credit is not refundable tax credit which exceeds the taxpayer’s income tax
and any unused credit may NOT be carried for- Attach Form N-323, and enter the fiduciary’s car-
liability may be used as a credit against the tax- ryover on Schedule E, line 11.
ward. payer’s income tax liability in subsequent years until
Attach Form N-756 to support your claim for this exhausted. Line 12. Renewable Energy Technologies In-
credit. come Tax Credit.—Each individual or corporate
Claims for this credit, including any amended taxpayer who files an individual or corporate net
Line 4. Low-Income Housing Tax Credit.—Ha- claims, must be filed on or before the end of the income tax return for 2009 may claim a tax credit
waii’s low-income housing tax credit is equal to twelfth month following the close of the taxable year against its income tax liability for an eligible re-
50% (30% for property placed in service before for which the credit may be claimed. newable energy technology system installed and
July 1, 2005) of the tax credit allocated by the Ha- For more information, see Forms N-318 and placed in service in Hawaii during the taxable year.
waii Housing Finance and Development Corpora- N-318A. Attach Form N-318 to the income tax return The tax credit shall apply only to the actual cost of
tion (HHFDC) for qualified buildings located within on which the credit is claimed. Enter the fiduciary’s the solar thermal, wind powered, or photovoltaic
the State of Hawaii. Contact HHFDC for qualifying share on Schedule E, line 6. energy system, including their accessories and
requirements and further information. installation, and shall not include the cost of con-
Line 7. Carryover of the Individual Develop-
Attach Form N-586, Hawaii Low-Income Hous- ment Account Contribution Tax Credit.—This sumer incentive premiums unrelated to the opera-
ing Tax Credit, to the income tax return on which credit may be claimed only if the fiduciary has a tion of the system or offered with the sale of the
the credit is claimed. Enter the fiduciary’s share on carryover of the tax credit from a prior year. Attach system (such as “free gifts”, offers to pay electricity
Schedule E, line 4. Form N-323 and enter the fiduciary’s carryover on bills, or rebates) and costs for which another credit
Claims for this credit, including any amended Schedule E, line 7. is claimed. The dollar amount of any utility rebate
claims, must be filed on or before the end of the shall be deducted from the cost of the qualifying
Line 8. Technology Infrastructure Renovation system and its installation before determining the
twelfth month following the close of the taxable year Tax Credit.—An income tax credit is allowed
for which the credit may be claimed. State credit. For systems installed and placed
equal to 4% of renovation costs incurred to pro- in service before July 1, 2009, tax credits that
Line 5. Credit For Employment of Vocational vide a commercial building with technology-en- exceed your income tax liability are not refunded
Rehabilitation Referrals.—The amount of the tax abled infrastructure. For renovation costs incurred but may be used as a credit against your income
credit for the taxable year shall be equal to 20% on or after May 1, 2009, in taxable years beginning tax liability in subsequent years until exhausted.
of the qualified first-year wages for that year. The on or after January 1, 2009, the credit is limited to
amount of the qualified first-year wages which may 80% of the taxpayer’s tax liability for the taxable The tax credit may be claimed for the following re-
be taken into account with respect to any individu- year. Any credit that exceeds the 80% limit cannot newable energy technology systems installed and
al shall not exceed $6,000 per year. be carried over and is lost. Other limits may apply. placed in service in Hawaii before July 1, 2009:
“Qualified wages” means the wages paid or in- Renovation costs are costs incurred after Decem- Type of Renewable
curred by the employer during the taxable year to an ber 31, 2000, to plan, design, install, construct, Energy Technology
individual who is a vocational rehabilitation referral and purchase technology-enabled infrastructure System Tax Credit Rate
equipment to provide a commercial building with
and more than one-half of the wages paid or incurred 1. Solar thermal energy systems
for such an individual is for services performed in a technology-enabled infrastructure. Technology-
enabled infrastructure means: (1) high speed a. Single-family The lesser of 35% of the
trade or business.
telecommunications systems that provide Internet residential actual cost of the system or
“Qualified first-year wages” means, with respect access, direct satellite communications access, property. $2,250.
to any individual, qualified wages attributable to ser- and videoconferencing facilities; (2) physical se- b. Multi-family Per unit: The lesser of 35%
vice rendered during the one-year period beginning curity systems that identify and verify valid entry residential of each unit’s actual cost of
with the day the individual begins work for the em- to secure spaces, detect invalid entry or entry at- property. the system or $350.
ployer. tempts, and monitor activity in these spaces; (3) c. Commercial The lesser of 35% of the
The credit allowed shall be claimed against net environmental systems to include heating, ventila- property. actual cost of the system or
income tax liability for the taxable year. A tax credit tion, air conditioning, fire detection and suppres- $250,000.
which exceeds the taxpayer’s income tax liability may sion, and other life safety systems; and (4) backup 2. Wind powered energy systems
be used as a credit against the taxpayer’s income tax and emergency electric power systems. The credit
a. Single-family The lesser of 20% of the
liability in subsequent years until exhausted. shall not be available for taxable years beginning
residential actual cost of the system or
The deduction for wages expense must be re- after December 31, 2010. See Form N-326 for
duced by the amount of the credit claimed. more information.
b. Multi-family Per unit: The lesser of 20%
Claims for this credit, including any amended Line 9. Credit for School Repair and residential of each unit’s actual cost of
claims, must be filed on or before the end of the Maintenance.—A credit is allowed to licensed property. the system or $200.
twelfth month following the close of the taxable year contractors, pest control operators, and profes-
c. Commercial The lesser of 20% of the
for which the credit may be claimed. sional engineers, architects, surveyors and land-
property. actual cost of the system or
scape architects who are subject to Hawaii’s in-
Refer to Form N-884 for further information. $500,000.
come tax for contributions of in-kind services for
Line 6. High Technology Business Investment the repair and maintenance of public schools. 3. Photovoltaic energy systems
Tax Credit.—A credit is allowed for investment in The credit shall be an amount equal to 10% of a. Single-family The lesser of 35% of the
a qualified high technology business for the tax- the value of the services contributed. The credit residential actual cost of the system or
able year in which the investment was made and must be claimed on or before the end of the twelfth property. $5,000.
the following four years. The credit is 35% of the in- month following the close of the taxable year for b. Multi-family Per unit: The lesser of 35%
vestment in the year the investment is made, 25% which the credit may be claimed. Certain other residential of each unit’s actual cost of
for the first year following the year the investment limitations and restrictions apply. See Form N-330 property. the system or $350.
was made, 20% for the second year following the for more information. Report the credit amount c. Commercial The lesser of 35% of the
investment, and 10% for each of the third and on this line. Beneficiaries will use Form N-330 to property. actual cost of the system or
fourth years following the investment. For invest- claim their credit. $500,000.
ments made on or after May 1, 2009, in taxable Line 10. Carryover of the Hotel Construction
years beginning on or after January 1, 2009 and and Remodeling Tax Credit.—The nonrefund- To determine this tax credit, use Form N-334 and
ending before January 1, 2011, the credit claimed able portion of the hotel construction and remod- attach the form to the income tax return Form
is limited to 80% of the taxpayer’s tax liability for the eling tax credit may be claimed by a fiduciary only N-40.
taxable year. Any credit that exceeds the 80% limit if the fiduciary has a carryover of this credit from Claims for this credit, including any amended
cannot be carried over and is lost. For investments a prior year. claims, must be filed on or before the end of the
made on or after May 1, 2009, no allocations of
twelfth month following the close of the taxable year Line 4. Credit for tax deemed paid on undis- If the
for which the credit may be claimed. tributed capital gains of regulated investment taxable income The tax shall be:
Line 13. Renewable Energy Technologies In- companies.—In the case of a shareholder of a (line 22) is:
come Tax Credit.—For systems installed and regulated investment company there is allowed a
credit in the amount of 4% of the amount of capital But Not Of the
placed in service on or after June 30, 2009, a Over Over amount
taxpayer may elect to reduce the eligible credit by gains which, by section 852(b)(3)(D), is required
to be included in the shareholder’s return and on over
30% and if this amount exceeds the tax liability, $ 0 $ 2,000 1.40% $ 0
the excess shall be refunded to the taxpayer. Once which there has been paid to Hawaii by the regu-
lated investment company the tax of 4%, imposed 2,000 4,000 $28.00 plus 3.20% 2,000
an election is made it is irrevocable. To determine 4,000 8,000 92.00 plus 5.50% 4,000
this tax credit for systems installed and placed in by subsection (b) of section 235-71, HRS.
8,000 12,000 312.00 plus 6.40% 8,000
service on or after July 1, 2009, use Form N-342 Line 5. Ethanol Facility Tax Credit.—A credit is 12,000 16,000 568.00 plus 6.80% 12,000
and attach the form to the income tax return. Enter allowable for the investment in a qualified ethanol 16,000 20,000 840.00 plus 7.20% 16,000
the fiduciary’s share of the credit on line 13. The facility that is in production on or before January 1, 20,000 30,000 1,128.00 plus 7.60% 20,000
fiduciary is required to compute for each individual 2017. See Form N-324 for more information. Enter 30,000 40,000 1,888.00 plus 7.90% 30,000
beneficiary, the prorated amount of the credit to be the fiduciary’s share of the credit on line 5. If a fidu- 40,000 — 2,678.00 plus 8.25% 40,000
claimed by the beneficiary on Form N-342. Report ciary claims this credit, no other income tax credit
this amount on Form N-40, Schedule K-1, line 9. may be claimed. If the estate or trust had both net capital gain and
Line 14. Ko Olina Resort and Marina Attractions Claims for this credit, including any amended any taxable income, complete Part VI of Schedule D
and Educational Facilities Tax Credit.—See claims, must be filed on or before the end of the (Form N-40), enter the tax from line 47 of Schedule
Form N-336 for information. twelfth month following the close of the taxable year D, and check the “Schedule D (Form N-40)” box.
for which the credit may be claimed.
Schedule F — Page 3 Section 641(c) tax on electing small
Line 6. Capital Good Excise Tax Credit.—A Cap- business trusts (ESBTs).
Other refundable credits. ital Goods Excise Tax Credit is available for tan-
Line 1. Fuel Tax Credit for Commercial gible personal property purchased and used in a Special rules apply when figuring the tax on the
Fishers.—Each principal operator of a commer- trade or business in Hawaii. The amount of the tax portion of an ESBT consisting of stock in one or
cial fishing vessel may claim a credit against his or credit allowable is 4% of the cost of the qualified more S corporations. This tax must be figured
her Hawaii State individual net income tax. The tax tangible property acquired in 2008. The tax credit separately from the tax on the remainder of the
credit shall be an amount equal to the fuel taxes is applied against a taxpayer’s net income tax lia- ESBT and is included in the total tax on Schedule
imposed under section 243-3(a), HRS, and paid bility, the excess will be refunded to the taxpayer. G (Form N-40) line 1. The tax on the remainder
by the principal operator during the year. In this re- of the ESBT is figured in the normal manner on
A fiduciary is required to compute, for each indi- Form N-40.
spect, a fiduciary is required to compute, for each vidual beneficiary, the prorated amount of the quali-
individual beneficiary, the prorated amount of the fying property which may be claimed by the individ- The tax on the S corporation items is figured as
fiduciary’s tax credit which may be claimed by the ual taxpayer on Form N-312. Report this amount on if that portion of the ESBT were a separate trust with
individual taxpayer on Form N-163. Report this Form N-40 Schedule K-1, line 7a. the following modifications:
amount on Form N-40 Schedule K-1, line 9. • Take into account only the income, losses, de-
Claims for this credit, including any amended
Claims for this credit, including any amended claims, must be filed on or before the end of the ductions, and credits allocated to the ESBT as
claims, must be filed on or before the end of the twelfth month following the close of the taxable year an S corporation shareholder and gain or loss
twelfth month following the close of the taxable year for which the credit may be claimed. from the disposition of S corporation stock.
for which the credit may be claimed. • You may not claim a deduction for capital loss-
For more information, see Tax Information Re- es in excess of capital gains.
Line 2. Motion Picture, Digital Media and Film lease No. 2001-4 and Form N-312. Attach Form
Production Income Tax Credit.—This credit is • You may not claim an income distribution de-
N-312 to the income tax return on which the credit duction or an exemption amount.
available to taxpayers subject to the imposition is claimed. Enter the fiduciary’s share on line 6.
of Hawaii’s income tax and is deductible from the • Except in figuring the maximum tax on capital
Line 7. Tax withheld on Form N-4.—Enter the gains, the tax on the separate trust’s taxable
taxpayer’s net income tax liability. The amount of
amount of Hawaii income tax withheld by an S income is at the highest rate imposed on es-
the credit is 15% of the qualified production costs
corporation as shown on the Form N-4 issued to tates and trusts.
incurred by a qualified production in the City and
the fiduciary. Attach Form N-4 to the front of the When figuring the tax and DNI on the remain-
County of Honolulu and 20% of the qualified pro-
fiduciary’s Form N-40 where indicated. ing portion of the trust, disregard the S corporation
duction costs incurred by a qualified production in
any other county in the State of Hawaii. The pro- Line 8. Renewable Energy Technologies Income items.
duction must be registered with the Department Tax Credit.—For systems installed and placed Do not apportion to the beneficiaries any of the S
of Business, Economic Development, and Tourism in service on or after June 30, 2009, a taxpayer corporation items.
(DBEDT) in order to be prequalified for the credit may elect to reduce the eligible credit by 30%
and qualified production costs must be certified by Include the section 641(c) tax on Schedule G
and if this amount exceeds the tax liability, the (Form N-40) line 1. Attach the section 641(c) tax
DBEDT in order to claim the credit. Refer to Form excess shall be refunded to the taxpayer. Once
N-340 for further information. Enter the fiduciary’s computation to the return.
an election is made it is irrevocable. To determine
share of the credit on Schedule F, line 2. this tax credit for systems installed and placed in Line 2. Total nonrefundable credits from
Claims for this credit, including any amended service on or after July 1, 2009, use Form N-342 Schedule E, line 15.—Enter on this line the total
claims, must be filed on or before the end of the and attach the form to the income tax return. Enter nonrefundable credits being claimed by the estate
twelfth month following the close of the taxable year the fiduciary’s share of the credit on line 8. The or trust from Schedule E, line 15.
for which the credit may be claimed. fiduciary is required to compute for each individual Line 4(a). Credit for estimated tax payments.—
beneficiary, the prorated amount of the credit to be Enter on this line the total estimated taxes paid by
Line 3. Tax Credit for Research Activities.—
claimed by the beneficiary on Form N-342. Report the estate or trust for 2009. Show the breakdown
This 20% credit is based on the federal credit for
this amount on Form N-40, Schedule K-1, line 9. of the total paid on Forms N-5 and N-288A (net of
research activities, except that the federal base
N-288C refunds) in the appropriate spaces.
amounts are excluded and the research must have Line 9. Important Agricultural Land Qualified
been conducted in Hawaii. This credit is available Agricultural Cost Tax Credit.—If you are claiming Line 4(b). Estimated tax payments allocated
for taxable years beginning before January 1, 2011. the important agricultural land qualified agricultural to beneficiaries.—A trust or a decedent’s estate
Research expenses incurred after June 30, 2004, cost tax credit, see Form N-344 for information. may elect to have any part of its estimated tax
must be certified in order to claim this credit. payments treated as made by a beneficiary or
Claims for this credit, including any amended Schedule G — Page 3 beneficiaries.
claims, must be filed on or before the end of the Tax Computation. Use Form N-40T to make the election to allocate
twelfth month following the close of the taxable year If the estate or trust had no taxable net capital estimated tax payments to beneficiaries. This elec-
for which the credit may be claimed. gains, the amount of the tax shall be determined tion must be filed by March 6, 2010.
For more information, see Forms N-319 and using the following rate schedule: Line 4(d). 2008 overpayment applied to 2009
N-319A. Attach Form N-319 to the income tax return estimated tax.—Enter on this line any overpay-
on which the credit is claimed. Enter the fiduciary’s ment from the 2008 return that was applied to the
share on Schedule F, line 3. 2009 estimated tax.
Line 4(f). Total of refundable credits from If the entity has an overpayment on its amended tionate share of distributable net income, reduced
Schedule F, line 10.—Enter on this line the total return, wants to have some or all of the overpayment in either case by the share of distributable tax-
of refundable credits being claimed by the estate credited to its 2010 estimated tax, line 9 on the en- exempt income minus the allocable expense not
or trust from Schedule F, line 10. tity’s original return was blank, and its 2010 return allowable as a deduction on Form N-40.
Line 6. Penalty for underpayment of estimated has not yet been filed, determine the amount of the Character of income.—The beneficiary’s income
tax.—See General Instruction F and Form N-210. overpayment available before entering any amount is considered to have the same proportion of each
on line 9. Enter the amount of the available overpay- class of items entering into the computation of DNI
Line 7. TAX DUE.—If there is an amount of tax due ment that is to be credited to 2010 estimated taxes
on line 7 and a payment is being made with this re- that the total of each class has to the DNI (for ex-
on line 9. Subtract the amount credited to estimated ample, half dividends and half interest if the en-
turn, Form N-201V, Business Income Tax Payment tax from the amount of overpayment available and
Voucher, must be completed and attached to the tity’s income is half dividends and half interest).
enter the difference on line 12 in ( ). Do not enter
return. Attach both your check or money order and any amount on line 10. Be sure that the sum of the Allocation of deductions.—Generally, items of
Form N-201V to the front of Form N-40. amounts entered on lines 9 and 12 is not more than deduction that enter into the computation of DNI
If the estate or trust cannot pay the full amount the available overpayment. are to be allocated among the items of income to
that is owed, you can ask to enter a payment agree- the extent such allocation is not inconsistent with
If the entity has an amount due on its amended the rules set out in section 469 and the regulations
ment after you receive a billing notice for the bal- return, make check or money order payable to
ance due. Please be aware that penalty and interest thereunder, relating to passive activity loss limita-
Hawaii State Tax Collector. Also complete Form tions, in the following order.
continue to accrue on the unpaid tax amount even N-201V, Business Income Tax Payment Voucher,
though you have not yet received a billing notice. and attach this form with the check or money order First, all deductions directly attributable to one
Payments will be accepted and applied to the en- to the front of Form N-40. class of income are deducted from that income. For
tity’s tax liability; however, to ensure that the entity’s example, rental expenses, to the extent allowable,
payments are applied correctly, your check or money Instructions for Schedule J are deducted from rental income.
order must have: (1) the entity’s name as shown on
the return clearly printed on the check, (2) the en-
(Form N-40) Trust Allocation of Second, deductions which are not directly attribut-
tity’s federal employer identification number (FEIN), an Accumulated Distribution able to one class of income, such as fiduciary fees,
may be allocated to any class of income, as long as
and (3) the tax year and form number being filed (ex. a reasonable portion is allocated to any tax-exempt
Refer to federal instructions for Schedule J, Form
2009 N-40). income.
Instructions for Schedule K-1 Finally, any excess deductions which are directly
attributable to a class of income may be allocated
Complete the entity’s amended return through
line 8, using corrected amounts, then go to line 11. (Form N-40) Beneficiary’s Share to another class of income. In no case can excess
If the return is being amended to take an NOL car- of Income, Deductions, Credits, deductions from a passive activity be allocated to
ryback deduction, also check the NOL box. Attach a Etc. income from a non-passive activity, or to portfolio
income earned by the estate or trust. Excess deduc-
completed Schedule AMD, Explanation of Changes
on Amended Return, to the amended return. Important Notes tions attributable to tax-exempt income cannot offset
any other class of income.
Line 11. Amount paid (overpaid) on original re- • For Form N-11 filers, if your federal Schedule
turn. —Enter on line 11 the amount paid on the en- K-1 (Form 1041) and Hawaii Schedule K-1 In no case can deductions be allocated to an item
tity’s original 2009 return (from line 7 of the original (Form N-40) amounts are different, the neces- of income that is not included in the computation of
return) or the amount overpaid (from line 8 of the sary adjustments are to be computed on the DNI, or attributable to corpus.
original return). Enter overpayments in ( ). Hawaii Additions Worksheet and the Hawaii Except for the final year and for depreciation or de-
Subtractions Worksheet in the Form N-11 In- pletion allocations in excess of income, you may not
If the original return has an overpayment part, or
structions. show any negative amounts for any class of income
all, of which was credited to 2010 estimated tax, the
• All referenced worksheets are contained in the because the beneficiary generally may not claim
amount that was credited on the original return can-
Form N-11 Instructions and in the Form N-15 losses or deductions from the estate or trust.
not be changed unless (1) the 2010 return has not
yet been filed, and (2) the amended return shows a Allocation of credits.—In general, the estate or
balance due. In this situation, you may request that General Instruction trust or the beneficiaries may claim applicable tax
the amount credited to 2010 estimated taxes be ap- credits according to how the income is divided.
plied to the balance due on the amended return by Purpose of form.—The fiduciary uses Schedule Past years.—Do not include in the beneficiary’s
attaching a written request to your amended return. K-1 (Form N-40) to report the beneficiary’s share income amounts deducted on Form N-40 for an
of income, deductions, and credits from a trust or
Line 12. BALANCE DUE (REFUND) with amend- earlier year that were credited or required to be
ed return.—If no amount was entered on line 11, distributed in that earlier year.
enter on line 12 the amount, if any, from line 7 or Who must file.—The fiduciary (or one of the Beneficiary’s tax year.—The beneficiary’s in-
line 8 of the amended return. If there is an amount joint fiduciaries) must file Schedule K-1. A copy come from the estate or trust must be included in
on line 11, and that amount is: of each beneficiary’s Schedule K-1 is attached to the beneficiary’s tax year during which the tax year
a. A payment and there is an amount on line 7 of the Form N-40 filed with the Department of Taxa- of the estate or trust ends. See Publication 559 for
the amended return, subtract the amount on tion and each beneficiary is given a copy of his or more information including the effect of the death
line 11 from the amount on line 7 and enter the her respective Schedule K-1. One copy of each of a beneficiary during the tax year of the estate
difference on line 12. If the amount on line 11 Schedule K-1 must be retained for the fiduciary’s or trust.
is larger than the amount on line 7, enter the records.
difference on line 12 in ( ). Beneficiary’s identifying number.—As a payor
b. A payment and there is an amount on line 8, of income, you are required to request and pro- Line 1. Interest.—Enter the beneficiary’s share
add these amounts and enter the total in ( ) on vide a proper identifying number for each recipient of the taxable interest income.
line 12. of income. Individuals and business recipients are Line 2. Ordinary Dividends.—Enter the benefi-
c. An overpayment and there is an amount on line responsible for giving you their taxpayer identifica- ciary’s share of dividend income.
7, add the amounts on lines 7 and 11. This is tion numbers upon request.
the amount the entity owes on its amended re- Line 3a. Net short-term capital gain.—Enter
Beneficiary’s income.—If no special computa- the beneficiary’s share of the net short-term
tions are required, use the following instructions to capital gain from Schedule D (Form N-40), line
d. An overpayment and there is an amount on
compute the beneficiary’s income from the estate 17, column (a). Do not enter a loss for any year
line 8, subtract the amount on line 11 from
or trust. In other cases, see Publication 559 and before the final year of the estate or trust. If for the
the amount on line 8 and enter the difference
sections 652, 662, and 663, and related regula- final year there is a capital loss carryover, enter
on line 12. If the amount on line 11 is larger
tions. For example, special computations are re- on line 8b, the beneficiary’s share of short-term
than the amount on line 8, the difference is the
quired for capital gains and losses or a charitable capital loss carryover as a loss in parentheses.
amount the entity owes on its amended return.
deduction. In addition, the terms of the governing However, if the beneficiary is a corporation, enter
If the amount on line 11 is less than the amount
instrument may require different computations. the beneficiary’s share of all carryover capital
on line 8, enter the difference in ( ). This is the
entity’s overpayment on the amended return. Income.—The beneficiary must include in gross losses in parentheses. See federal Publication
Do NOT enter this amount on line 10. income the smaller of: (1) the amounts paid, cred- 559 and section 642(h) and related regulations for
ited, or required to be distributed; or (2) the propor- more information.
Line 3b. Net long-term capital gain.—Enter the If there is more than one activity, one or more of then the NOL carryover is considered an excess
beneficiary’s share of the net long-term capital which is a passive activity, income and deductions deduction on the termination of the entity to the
gain from Schedule D (Form N-40), line 18, col- are to be shown separately for each activity on an extent it is not absorbed by the estate or trust dur-
umn (a). Do not enter a loss for any year before attached schedule. ing its final tax year. For more information, see
the final year of the estate or trust. If for the final Line 6. Other net income taxes.—List on a sep- Publication 559, section 642(h), and the related
year there is a capital loss carryover, enter on line arate sheet the beneficiary’s share of the appli- regulations.
8c, the beneficiary’s share of the long-term capi- cable net income taxes paid or accrued to another Upon termination of an estate or trust, a benefi-
tal loss carryover as a loss in parentheses. (If the state or foreign country. Identify and include the ciary succeeding to its property is allowed to deduct
beneficiary is a corporation, see the instructions various sources for the beneficiary’s credit. any amount of unused NOL carryover. Enter the
for line 3a.) See Publication 559, section 642(h) unused carryover amount and write “NOL CARRY-
and related regulations for more information. Line 7a. Capital Goods Excise Tax Credit.—
Enter the beneficiary’s share of the cost of prop- OVER” (see line 8a instructions) to the left of the
Gains, or losses, from the complete, or partial, erty qualifying for the Capital Goods Excise Tax figure.
disposition of a rental, rental real estate, or trade or Credit. Beneficiaries are to figure their credit on Line 9. Other.—Itemize on line 9, or on a sepa-
business activity that is a passive activity, must be Form N-312. rate sheet, the beneficiary’s tax information for
shown as an attachment to Schedule K-1. which there is no other line on Schedule K-1. This
Line 7b. Low-Income Housing Tax Credit.—
Line 4a. Business income and other non-pas- Enter the beneficiary’s share of the Low-Income includes the allocable share, if any, of:
sive income.—Enter the beneficiary’s share of Housing Tax Credit. Beneficiaries are to report
annuities, royalties, or any other income, before • Payment of estimated tax to be credited to the
their share of the credit on Form N-586. beneficiary, including any Hawaii income taxes
any directly apportionable deductions, that is NOT
subject to any passive activity loss limitation rules Line 7c. High Technology Business Investment withheld upon the sale of Hawaii real property
at the beneficiary level. Use line 5a to report in- Tax Credit.—Enter the beneficiary’s share of the by a nonresident estate or trust if the sale is
come items that could be subject to the passive High Technology Business Investment Tax Credit. taxable at the beneficiary level. The fiduciary
activity rules at the beneficiary’s level. Beneficiaries are to report their share of the credit must timely file (by the 65th day after the close
on Form N-318. of the tax year) Form N-40T, Allocation of Esti-
Lines 4b and 5b. Depreciation (including cost mated Tax Payments to Beneficiaries, in order
recovery).—Enter the beneficiary’s share of Line 7d. Tax Credit for Research Activities.—
Enter the beneficiary’s share of the Tax Credit for for these payments to be transferred to the
the depreciation deductions attributable to each beneficiaries. If Form N-40T is not timely filed,
activity reported on lines 4a and 5a. See the in- Research Activities. Beneficiaries are to report
their share of the credit on Form N-319. the estimated tax payments cannot be used
structions for line 4 on page 4 for a discussion by the beneficiaries. (A copy of Schedule K-1
of how the depreciation deduction is apportioned Line 8a. Excess deductions on termination.—If (Form N-40) must be attached to beneficiary’s
between the beneficiaries and the estate or trust. this is the final return and there are excess de- return to substantiate claim.);
Note: An estate or trust cannot make an election ductions on termination or an NOL carryover (see • Tax-exempt interest realized by the trust (in-
under section 179 to expense certain depreciable instruction for “Line 18. Adjusted total income or cluding exempt-interest dividends received as
business assets. (loss).—”), enter the beneficiary’s share of the ex- a shareholder in a mutual fund or other regu-
cess deductions on line 8a. lated investment company);
Lines 4c and 5c. Depletion.—Enter the
beneficiary’s share of the depletion deduction (a) Excess Deductions. Excess deductions on • Nontaxable dividends;
under section 611 attributable to each activity termination occur only during the last taxable year of • Investment income (section 163(d));
reported on lines 4a and 5a. See the instructions the estate or trust when the total deductions (other • Enterprise Zone Tax Credit;
for line 4 on page 4 for a discussion of how the than the deductions allowed under section 642(b) • Credit for Employment of Vocational Rehabili-
depletion deduction is apportioned between the (relating to the exemption amount) or section 642(c) tation Referrals;
beneficiaries and the estate or trust. (relating to the charitable contributions)) are greater • Fuel Tax Credit for Commercial Fishers;
than the gross income during that tax year. Figure • Motion Picture, Digital Media and Film Produc-
Lines 4d and 5d. Amortization.—Itemize the the deductions on a separate sheet and attach it to tion Income Tax Credit;
beneficiary’s share of the amortization deductions the form. • Credit for tax deemed paid on undistributed
attributable to each activity reported on lines 4a capital gains of regulated investment compa-
and 5a. Divide the amortization deductions be- Only the beneficiary of an estate or trust that
succeeds to its property is allowed to deduct that nies;
tween the fiduciary and the beneficiaries in the • Total costs qualifying for the Technology Infra-
same way that the depreciation and depletion de- entity’s excess deductions on termination. A ben-
eficiary who does not have enough income in that structure Renovation Tax Credit;
ductions are divided. • Credit for School Repair and Maintenance;
year to absorb the entire deduction may not carry
Lines 5a through 5d.—Caution: The limitations the balance over to any succeeding year. An individ- • Ethanol Investment Tax Credit;
on passive activity losses and credits under sec- ual beneficiary must be able to itemize deductions in • Renewable Energy Technologies Income Tax
tion 469 apply to estates and trusts. Estates and order to claim the excess deductions in determining Credit. Also note the type of system installed
trusts that distribute income to beneficiaries are taxable income. and the date of the installation;
allowed to allocate depreciation, depletion, and • Ko Olina Resort and Marina Attractions and
amortization deductions to the beneficiaries. Lines 8b and 8c. Unused capital loss Educational Facilities Tax Credit;
These deductions are referred to as “directly al- carryover.—Upon termination of the trust or de- • The information a beneficiary will need to com-
locable deductions.” cedent’s estate, the beneficiary succeeding to the pute any recapture taxes; and
property is allowed as a deduction any unused • Taxes withheld by an S corporation on behalf
Any directly allocable deduction, such as depre- capital loss carryover under section 1212. If the
ciation, is treated by the beneficiary as having been of the fiduciary allocated to the beneficiaries.
estate or trust incurs capital losses in the final
incurred in the same activity as incurred by the trust year, use Part V of Schedule D (Form N-40) to Note: Upon termination of an estate or trust, any
or estate. However, the character of such deduction compute the amount of capital loss carryover to suspended passive activity losses (PALs) relating
may be determined as if the beneficiary incurred the be allocated to the beneficiary. to an interest in a passive activity cannot be dis-
deduction directly. tributed to the beneficiary. Instead, the basis in
Line 8d. Net operating loss (NOL) carryover.— such activity is increased by the amount of any
To assist the beneficiary in computing any appli- Generally, a deduction based upon an NOL carry-
cable passive activity loss limitations, also attach a PALs allocable to the interest, and no losses are
over is not available to a beneficiary as an excess allowed as a deduction on the estate’s or trust’s
separate schedule showing the beneficiary’s share deduction. However, if the last tax year of the es-
of income derived from: (a) rental; (b) rental real es- Form N-40.
tate or trust is also the last year in which an NOL
tate; and (c) business activities. carryover may be taken (see section 172(b)),
B—SPECIFIC INSTRUCTIONS FOR NONRESIDENT ESTATES AND TRUSTS
In general, the instructions for resident estates purchase or carry property owned outside Hawaii or an amount otherwise would be allowable as a de-
and trusts apply. However, lines 1 through 8 will in- to carry on trade or business outside Hawaii. Losses duction under section 212 (relating to expenses for
clude only gross income from property owned and from property owned outside Hawaii and from other the production of income), it is not allowable to the
other sources in Hawaii. sources outside Hawaii shall not be deducted. Like- extent allocable to income from sources outside
No deduction may be had for interest paid or wise, other deductions connected with income from Hawaii.
accrued or indebtedness incurred or continued to sources outside Hawaii shall not be allowed. Though
C—SPECIFIC INSTRUCTIONS FOR QUALIFIED FUNERAL TRUSTS
Hawaii’s Income Tax Law allows a pre-need fu- Making the Election the AGI separately for each QFT using each QFT’s
neral trust to elect not to be treated as a grantor trust share of income and deduction amounts.
For Hawaii purposes, the trustee makes the elec-
but to be taxed as a qualified funeral trust (QFT) and Also, a schedule must be attached to the com-
tion to treat a trust as a QFT when the trustee, for
to have the tax on the earnings of the trust paid by posite Form N-40 that includes the following informa-
federal purposes, files federal Form 1041-QFT.
the trustee. The income tax rates for estates and tion for each QFT (or separate interest treated as a
trusts are applicable to QFTs. For Hawaii purposes, The election may be made for any tax year end-
a QFT is to file Form N-40 to report the income, de- ing after August 5, 1997. QFT status may be elected
ductions, gains, losses, etc., and income tax liability for trust’s first eligible year or for any subsequent • The name of the owner or the beneficiary. If you
of the QFT. These provisions are effective for tax year. list the name of the owner and that trust has
years ending after August 5, 1997. more than one beneficiary, you must separate
Once made, the election for federal purpose may
the trust into shares held by the separate
In general, the trustee of a pre-need funeral trust not be revoked without the consent of the IRS. If the
which has elected to be taxed as a qualified funeral election is revoked for federal purposes, the election
trust (QFT) files Form N-40 to report the income, de- is also revoked for Hawaii purposes. • The type and gross amount of each type of
ductions, gains, losses, etc., and income tax liability income earned by the QFT for the tax year. For
of the QFT. The trustee can use the form to file for capital gains, identify separately the amount of
A trustee may file a single, composite Form N-40 net short-term capital gain, net long-term capital
a single QFT or for multiple QFTs having the same
for all QFTs of which he or she is the trustee. Gen- gain, and unrecaptured section 1250 gain;
trustee, following the rules discussed under Com-
erally, a QFT included on a composite return must
posite Return below. • The type and amount of each deduction and
have a calendar year as its tax year.
For contracts entered into for tax yers beginning credit allocable to the QFT
Write “Composite Qualified Funeral Trust” across
after August 29, 2008, there is no limit on the amount • The tax and payments made for each QFT;
the top of Form N-40.
of contributions that may be made to a QFT. For and
contracts entered into 2008 for tax years beginning On the applicable lines of the Form N-40, enter
• If the QFT was terminated during the year, give
before August 30, 2008, contributions to a QFT may the totals for all the QFTs included on the return.
the date of the termination.
not exceed $9,000. With regard to the adjusted gross income (AGI) to
be used for the allowable miscellaneous itemized
deductions subject to the 2% floor, you must figure