This is ann example of how the problem is done: $1.$Trust is simple trust; Interest income of $9000$; Tax exempt interest income of $1000$

Find FAI

Fiduciary income is $9,000+1,000=10,000$

Then tentative taxable income

$=9,000-$ $$300$ exemption $=8700$

Get DNI the modified DNI

$=$ tentative taxable income $+$ add back personal exemption $-$ net cap gain $+$ add net cap loss $+$ add net tax exempt interest

$=8700+300+1000=10,000$

Modified DNI: SUBTRACT THE TAX EXEMPT INTEREST

$=10,000-1,000$

$=9,000$

Then get the taxable income for state of the trust

$=$ Tentative taxable income$-($lesser of FAI or Modified DNI$)$

$=8700-9000$

$=300$

K$1$ for beneficiary

Out of $10,000$ received the K$1$ will depict it as

$9,000$ of interest and $1,000$ of tax exempt interest. QUESTION STARTS HERE: Interest income $10,000$; gross rents INCOME $50,000$; dividends income $($fiduciary$)20,000$; tax$-$exempt income $20,000$; capital gains $20,000$; capital loss $10,000$; rent expense $15,000$; expenses related to tax$-$exempt income $1,000$; trustee allocation to corpus $6,000$; trustee allocation to income $4,000.$ Find:

FAI:

Tentative Taxable Income:

DNI:

Modified DNI:

Taxable Income for the state of trust:

K$1$ for beneficiary: