8100 / How are the payments from a charitable remainder trust to a beneficiary taxed?
Amounts distributed to noncharitable beneficiaries retain the character (ordinary income, capital gain, and other income such as tax-exempt income) they had when received by the trust (even if the trust is not taxed on the income). However, the income of the trust is deemed to be distributed in the following order:
First, distributions are treated as made out of the ordinary income of the trust to the extent it has ordinary income for the tax year plus its ordinary income not distributed for prior years. Ordinary income not distributed is carried over as such until the next year.1
Second, distributions in excess of ordinary income are considered to be distributions of net capital gain, to the extent of the trust’s net capital gain not previously distributed.2 (See Q 702 for a detailed explanation of the calculation of capital gains and losses.)