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                                                                      STATE OF HAWAII—DEPARTMENT OF TAXATION
2023 
(REV. 2023)                            INSTRUCTIONS FOR FORM N-40 
                 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.)

Contents                                    Page                       to $17,000,000 per qualified production; (4) re-            Note: Form N-40 for 2023 may also be used if: (1) 
                                                                       ducing the amount of qualified productions costs            the trust or estate has a tax year of less than 12 
Special Instructions for Bankrupt Estates .........4                   from $200,000 to $100,000; (5) removing the re-             months that begins and ends in 2024 and (2) the 
                                                                       quirement for productions to submit a verification          2024 Form N-40 is not available by the time the trust 
Special Instructions for Simple Trusts                                 review by a qualified certified public accountant;          or estate is required to file its return. However, the 
Without Capital Gains (or Losses) ..............5                      (6)  requiring  the  report  by  the  Department  of        trust or estate must show its 2024 tax year on the 
Specific Instructions for Resident Estates                             Business  Economic  Development  and Tourism                2023 Form N-40 and incorporate any tax law chang-
And Trusts ....................................................5       (DBEDT) to include the dollar amount claimed,               es that are effective for tax years beginning after De-
                                                                       name of the company, and name of the qualified              cember 31, 2023.
Instructions for Schedule D (Form N-40) - Gains                        production of the taxpayer; (7) changing the time           When Form N-40 Must Be Filed
and Losses from the Sale or Exchange of                                frame for DBEDT to issue a letter to the taxpayer    
Capital Assets ..............................................11        claiming the tax credit; and (8) requiring taxpay-          Returns must be filed on or before the 20th day of 
                                                                       ers to submit a fee to DBEDT.                               the fourth month following the close of the taxable 
Instructions for Schedule J (Form N-40) - Trust                                                                                    year of the estate or trust. If the due date falls on a 
Allocation of an Accounting Distribution ......12                      General Instructions                                        Saturday, Sunday, or holiday, the due date for the 
Instructions for Schedule K-1 (Form N-40) -                            Who Must File Form N-40                                     return is extended to the next business day.
Beneficiary’s Share of Income, Deductions,                             Decedent’s Estate                                           Note: Under  Hawaii  Tax  Law,  certain  tax  credits 
Credits, Etc. ..................................................12                                                                 must be claimed within 12 months from the close of 
                                                                       Every estate having for the taxable year gross in-          the tax year.
Specific Instructions for Nonresident Estates                          come of $400 or more subject to taxation under the 
And Trusts ....................................................14      Hawaii Income Tax Law.                                      Private delivery services. Hawaii has adopted 
                                                                                                                                   the IRC provision to allow documents and payments 
Specific Instructions for Qualified Funeral                            Trust                                                       delivered by a designated private delivery service to 
Trusts ............................................................14                                                              qualify for the “timely mailing treated as timely filing/
                                                                       Every trust having for the taxable year any taxable 
ATTENTION:                                                             income,  or  having  gross  income  of  $400  or  more      paying rule.” The Department will conform to the In-
Hawaii has not adopted the increased expens-                           subject  to  taxation  under  Hawaii  Income Tax  Law       ternal Revenue Service (IRS) listing of designated 
ing  deduction  under  section  179  (Hawaii  limit  is                regardless of the amount of taxable income.                 private delivery service and type of delivery services 
                                                                                                                                   qualifying under this provision. Timely filing of mail 
$25,000) or the bonus depreciation provisions.                         The trustee of a    charitable remainder trust              which  does  not  bear  the  U.S.  Post  Office  cancel-
Hawaii has not adopted the domestic activities                         shall file a Hawaii Form N-40, showing the revenues         lation mark or the date recorded or marked by the 
production deduction under section 199.                                and expenses of the trust and no tax liability for the      designated  delivery  service  will  be  determined  by 
                                                                       trust.  Compute  the  taxable  income  and  enter  the      reference to other competent evidence. The private 
Where To Get Tax Forms                                                 amount on line 15 on page 1 as an adjustment to             delivery service can tell you how to get written proof 
Hawaii  tax  forms,  instructions,  and  schedules                     result in no taxable income on line 22. Schedules           of the mailing date.
may be obtained at any taxation district office or from                K-1 are to be attached to the Form N-40.
                                                                                                                                   Six-month automatic extension of time to 
the Department of Taxation’s (Department) website at                   A qualified revocable trust which has made the              file. Section 18-235-98, Hawaii Administrative Rules 
tax.hawaii.gov,  or  you  may  contact  a  customer                    election for Hawaii purposes under section 645(a) to        (HAR), allows an automatic six-month extension of 
service  representative  at:  808-587-4242  or  1-800-                 be treated and taxed, for income tax purposes, as           time to file a return without filing an application for 
222-3229 (Toll-Free).                                                  part of its related estate during the election period,      extension. This extension does not include an ex-
                                                                       files Form N-40. To make this election, file federal        tension of time to pay. File Form N-201V, Business 
Changes You Should Note                                                Form 8855 with the Department.                              Income Tax Payment Voucher, to make a payment 
Act 50, Session Laws of Hawaii (SLH) 2023                        —     Nonresident Estate or Trust                                 (if applicable). File Form N-201V by the regular due 
The Pass-Through Entity (PTE) Tax Credit allows                                                                                    date of the fiduciary income tax return. Federal Form 
partnerships and S corporations to annually elect                      Every nonresident  estate  or  trust  having  gross  in-    7004, Application for Automatic Extension of Time To 
to pay Hawaii income taxes at the entity level. Eli-                   come of $400 or more (some part or all of which             File Certain Business Income Tax, Information, and 
gible members of an electing PTE may claim a                           is  from  sources  within  Hawaii)  regardless  of  the     Other Returns, may not be used in lieu of Form N-
nonrefundable income tax credit for their pro rata                     amount of gross income subject to taxation or the           201V. Form N-201V may be filed and payment made 
share of PTE taxes paid by the entity. Effective                       amount of taxable income, (i) if any of the benefi-         electronically  through  the  State’s  Internet  portal  at  
January 1, 2024 for taxable years beginning after                      ciaries is a resident of Hawaii, or (ii) if in the case of  hitax.hawaii.gov.
December 31, 2022.                                                     a trust, a resident of Hawaii is treated as the sub-
Act 56, SLH 2023 — This act amends Hawaii In-                          stantial owner of any portion of the trust, or (iii) if the Where Form N-40 Must Be Filed
come Tax  Law  under  chapter  235,  Hawaii  Re-                       trust is engaging in business (rental of real property      If you are enclosing a check or money order with 
vised Statutes (HRS), to conform to certain provi-                     located in Hawaii).                                         your tax return, mail your return with payment to:
sions of the IRC, as amended as of December                            “Resident trust” means a trust of which the fidu-
31, 2022.                                                              ciary is a resident of the State or the administration                 Hawaii Department of Taxation 
Act 217, SLH 2022 –   This act amends the motion                       of which is carried on in the State.                                         P.O. Box 1530 
                                                                                                                                                Honolulu, HI  96806-1530
picture, digital media, and film production income                     “Nonresident trust” means one other than resi-
tax credit for taxable years beginning after De-                       dent.                                                       If you are not enclosing a payment with your tax 
                                                                                                                                   return, mail your return to:
cember 31, 2022 by (1) changing the repeal date                        Period To Be Covered By 2023 Return
from January 1, 2026 to January 1, 2033; (2) in-
                                                                                                                                              Hawaii Department of Taxation 
creasing the credit amount from 20% of qualified                       File the 2023 return for calendar year 2023 and fis-                         P.O. Box 3559 
production costs to 22% in a county with a popu-                       cal years beginning in 2023 and ending in 2024. If                       Honolulu, HI  96811-3559
lation of over 700,000, and from 25% of qualified                      the return is for a fiscal year or a short tax year (less 
production costs to 27% in a county with a popu-                       than 12 months), fill in the tax year space at the top      Payment can be made electronically through the 
lation of 700,000 or less; (3) increasing the credit                   of the form.                                                State’s internet portal at hitax.hawaii.gov.
ceiling from $15,000,000 per qualified production

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Authentication                                            Electronic Funds Transfer (EFT)                               rybacks for non-farm NOLs and to eliminate the 80% 
                                                                                                                        of taxable income limitation for taxable years begin-
Returns shall be authenticated by the original signa-     Section 231-9.9, HRS, authorizes the Department to            ning  after  December  31,  2017  and  ending  before 
ture of the individual fiduciary, or by the authorized    require those taxpayers whose tax liability for a par-        January 1, 2021.
officer of the organization receiving or having cus-      ticular year exceeded $100,000 during the past year           You may elect to carry the farming NOL forward 
tody or control and management of the income of           to pay that tax by EFT instead of by check. The De-           instead of first carrying it back to prior years. If you 
the estate or trust.                                      partment reviews the filing records of taxpayers and          make this election, then you can use your farming 
  The Paid Preparer’s Information at the bottom of        will mail notices to taxpayers who met this criterion.        NOL only in the carryforward period. To make this 
page 1 of Form N-40 must be signed and completed          Any taxpayer who does not meet the criterion may              election, attach a statement to your original return 
by the person or in the name of the firm or corpora-      still voluntarily pay by EFT. For more information on         filed by the due date (including extensions) for the 
tion paid to prepare the fiduciary’s return. Individual   paying taxes by EFT, please see Tax Information Re-           farming  NOL  year. This  statement  must  state  that 
preparers  may  furnish  their  alternative  identifying  leases Nos. 95-6 and 99-1.                                    you are electing to waive the carryback period un-
number for income tax return preparers (PTIN) in-         Penalties and Interest                                        der section 235-7(d), HRS, and IRC section 172(b)
stead of their social security number.                                                                                  (1)(B)(iv).
  The preparer required to sign the return MUST           For failure to file, pay or amend as required by law,         If you filed your original return on time but did 
complete the required preparer information and:           penalties and interest will be added to the tax under         not file the statement with it, you can make this elec-
                                                          section  235-104, HRS.
• Sign it in the space provided for the preparer’s                                                                      tion on an amended return filed within 6 months of 
  signature.                                              Late filing of return. The penalty for failure to             the original due date of the return, but not including 
                                                          file a return on time is assessed on the tax due at           any extension. Attach a statement to your amend-
• Give a copy of Form N-40 to the taxpayer, in ad-        a rate of 5% per month, or part of a month, up to a           ed  return,  and  write  “Filed  pursuant  to  26  C.F.R. 
  dition to the copy to be filed with the Department.     maximum of 25%.                                               301.9100-2” at the top of the statement. Also include 
  The fiduciary may authorize the Department to           Failure to pay tax after filing timely returns.               the statement noted above that you are waiving the 
discuss its tax return with its paid preparer by check-   The penalty for failure to pay the tax after filing a         carryback period. Once you elect to waive the car-
ing the “Yes” box above the paid preparer’s identi-       timely return is 20% of the tax unpaid within 60 days         ryback period, it cannot be changed later. If you do 
fication number. Checking “Yes” will allow the De-        of the prescribed due date.                                   not file this statement on time, the carryback period 
partment to contact the paid preparer to answer any                                                                     cannot be waived and you must first carry the farm-
questions that may arise during the processing of         Failure to timely pay by EFT. The penalty for                 ing NOL back before carrying it forward.
your tax return. This designation does not allow your     failure to timely pay by EFT is 2% of the total tax.
                                                                                                                        If you are filing your return after the prescribed 
paid preparer to call the Department for information      Interest.  Interest  at  the  rate  of  2/3  of  1%  per      due date, the refund shown may be limited or disal-
about the processing of your return or for other is-      month  or  part  of  a  month  shall  be  assessed  on        lowed due to the statute of limitations. In general, a 
sues relating to your return. This designation does       unpaid taxes and penalties beginning with the first           claim for refund or credit for overpaid income taxes 
not replace Form N-848, Power of Attorney.                calendar day after the date prescribed for payment,           must be filed within three years after the return is 
                                                          whether or not that first calendar day falls on a Sat-        filed for the taxable year, within three years of the 
When and to Whom the Tax Must Be                          urday, Sunday or legal holiday.                               due date for filing the return, or within two years from 
Paid                                                      Underpayment of estimated taxes.  The  De-                    when the tax is paid, whichever is later. For purposes 
The tax of a trust or an estate must be paid in full      partment imposes the penalty for the underpayment             of determining whether a refund or credit is allowed, 
when the return is filed.                                 of  estimated  tax  as  provided  in  section  235-97(f),     taxes paid on or before the due date of the return 
                                                          HRS. If applicable, this penalty shall be added to the        (e.g. taxes withheld from an employee’s pay, or es-
  The tax may be paid by check or money order             tax for the taxable year in an amount determined at           timated tax payments) are considered paid on the 
made payable to the Hawaii State Tax Collector. Do        the rate of 2/3 of 1% per month, or part of a month,          due date of the return, without considering an exten-
not send cash.                                            upon the amount of the underpayment for the period            sion of time to file the return.
  Write your Federal Employer I.D. No. (FEIN) on          of the underpayment.
the check or money order. Your check must be on a         Generally, if at least:                                       Change In Federal Taxable Income
U.S. bank and payment in U.S. dollars.
                                                          (1) 60% of the tax shown on the 2023 tax return; or           In general, a change to your federal return whether 
                                                                                                                        it is made by you, or by the IRS, must be reported to 
Note: Form N-201V is no longer required when mak-         (2) 100%  of  the  tax  shown  on  the  2022  return          the State of Hawaii.
ing a payment with your return.                           is not prepaid, a penalty for not paying enough 
  If the estate or trust cannot pay the full amount       estimated tax may be charged.                                 (1) Section  235-101(b),  HRS,  requires  a  report  to 
                                                                                                                        the Director of Taxation if the amount of federal 
that is owed, you can ask to enter a payment agree-       For  more  information  regarding  the  underpay-             taxable income is changed, corrected, adjusted, 
ment after you receive a billing notice for the bal-      ment penalty and special rules for farmers and fish-          or recomputed as stated in (3).
ance due. Please be aware that penalty and interest       ermen, see Form N-210.
continue to accrue on the unpaid tax amount even                                                                        (2) This report must be made:
though you have not yet received a billing notice.        Amended Return                                                (a) Within 90 days after a change, correction, 
Payments will be accepted and applied to the entity’s                                                                      adjustment or recomputation is finally deter-
tax liability; however, to ensure that the entity’s pay-  If  a  fiduciary’s  return  is  filed  and  then  it  becomes 
ments are applied correctly, your check or money          necessary to make changes to income, deductions,                 mined.
order must have: (1) the entity’s name as shown on        or credits, file an amended return on Form N-40, us-          (b) Within  90  days  after  an  amended  federal 
the return clearly printed on the check, (2) the entity’s ing the form for the year being amended. Check the               return is filed.
FEIN, and (3) the tax year and form number being          box on Form N-40, Item F for an amended return                (c) At the time of filing the next income tax re-
filed (e.g., 2023 N-40).                                  and fill in the return with all of the correct information.      turn, if earlier than set forth in (a) or (b).
                                                          Attach a completed Schedule AMD, Explanation of 
  If the fiduciary expects a tax liability of $500 or     Changes on Amended Return, to the amended re-                 (3) A report within the time set out in (2) is required 
more, a declaration of estimated tax must be filed.       turn. Also, attach all schedules, forms, and attach-          if:
Use Form N-201V to send your estimated tax pay-           ments  required  to  file  a  complete  return.  See  the     (a) The amount of taxable income as returned 
ment to the Department.                                   instructions for Schedule G lines 14 and 15. If the              to  the  United  States  is  changed,  correct-
  If you are filing your return after the prescribed      return is being amended to take a farming net op-                ed or adjusted by an officer of the United 
due date, the refund shown may be limited or disal-       erating loss (NOL) carryback deduction, also check               States other competent authority.
lowed due to the statute of limitations. In general, a    the box on Form N-40, Item F, NOL Carryback.                  (b) A change in taxable income results from a 
claim for refund or credit for overpaid income taxes      For NOLs arising in tax years ending after De-                   renegotiation of a contract with the United 
must be filed within three years after the return is      cember  31,  2017,  Act  27,  SLH  2018,  eliminates             States or a subcontract thereunder.
filed for the taxable year, within three years of the     NOL carrybacks (except for farming NOLs which are             (c) A recomputation of the income tax imposed 
due date for filing the return, or within two years from  permitted a two-year carryback), and allows unused               by the United States under the IRC results 
when the tax is paid, whichever is later. For purposes    NOLs  to  be  carried  forward  indefinitely.  Also,  the        from any cause.
of determining whether a refund or credit is allowed,     NOL deduction is limited to 80% of taxable income 
taxes paid on or before the due date of the return        for NOLs arising in tax years beginning after Decem-          (d) An amended income tax return is made to 
(e.g. taxes withheld from an employee’s pay, or es-       ber 31, 2017.                                                    the United States.
timated tax payments) are considered paid on the 
due date of the return, without considering an exten-     Note: Hawaii does not conform to the federal law              (4) The report referred to above shall be in the form 
sion of time to file the return.                          changes made in the CARES Act to re-allow the car-            of an amended Hawaii income tax return.

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(5) The statutory period for the assessment of any         dent his or her income would be treated as though         At-Risk Loss Limitations
deficiency  or  the  determination  of  any  refund        it had its source in Hawaii even if it had its source 
attributable to the report shall not expire before         elsewhere, since the fact that the decedent was a         Generally,  the  amount  the  estate  or  trust  has  “at 
the expiration of one year from the date the De-           resident in itself makes the income taxable. On the       risk” limits the loss you can deduct for any tax year. 
partment is notified by the taxpayer or the IRS,           other hand, if the decedent’s income had its source       Use federal Form 6198, At-Risk Limitations, to figure 
whichever is earlier, of such a report in writing.         outside Hawaii and he or she was a nonresident, this      the deductible loss for the year and file it with Form 
Before the expiration of this one-year period, the         income will be treated as wholly tax exempt.              N-40. For more information, see federal Form 6198, 
Department and the taxpayer may agree in writ-               Estate  tax  or  Generation-Skipping  Transfer          Publication 559, and Publication 925, Passive Activ-
ing to the extension of this period. The period so         (GST) tax previously paid to Hawaii, under Chapter        ity and At-Risk Rules.
agreed upon may be further extended by sub-                236D or Chapter 236E, HRS, which was attributable         Passive Activity Loss Limitations
sequent agreements in writing made before the              to the inclusion in a decedent’s gross estate of the 
expiration of the period previously agreed upon.           right to receive items of income treated as income        Section 469 generally limits deductions and credits 
IRS Adjustment Checkbox                                    in respect of a decedent and includable in gross in-      derived from passive activities to the amount of in-
                                                           come on the fiduciary return, is allowable as a de-       come derived from all passive activities.
If your are filing an amended return due to an IRS         duction either to the fiduciary or to the beneficiaries,  Generally, an activity is deemed to be passive 
adjustment,  check  the  boxes  on  Form  N-40,  Item      depending on whether or not such income is paid,          if it involves the conduct of any trade or business, 
F, Amended Return and IRS Adjustment. Fill in the          credited, or required to be distributed. The fiduciary    and the taxpayer does not materially participate in 
return with all the correct information and attach a       is entitled to deduct only the portion of the Chapter     the activity. Passive activities do not include work-
completed Schedule AMD, Explanation of Changes             236D or Chapter 236E, HRS, tax attributable to such       ing interests in oil and gas properties (as defined in 
on Amended Return, to the amended return. Also,            income, which was not (during the taxable year in         section 469(d)).
attach  all  schedules,  forms,  and  attachments  re-     which received) paid, credited, or required to be dis-
quired  to  file  a  complete  return.  Give  a  corrected tributed to a beneficiary. Any deductions in this con-    An estate or trust is treated as materially partici-
Schedule K-1 (Form N-40) to each beneficiary. On           nection to which beneficiaries are entitled should be     pating in an activity if an executor or fiduciary, in his 
Schedule K-1 (Form N-40), check the box Amended            shown in a statement attached to the return.              or her capacity as such, is involved in operations of 
                                                                                                                     the activity on a regular, continuous, and substan-
K-1 to indicate it is an amended Schedule K-1.               The credit for taxes paid to other jurisdictions is     tial basis. In the case of a grantor trust, however, 
                                                           limited to taxes imposed on the fiduciary itself as the   material  participation  is  determined  at  the  grantor 
Protective Claim                                           taxpayer. Do not take any credit for taxes paid to oth-   level. Rental activities are considered to be passive 
A protective claim is a claim filed to protect a taxpay-   er jurisdictions for taxes imposed on the decedent        activities, whether or not the taxpayer materially par-
er’s right to a potential refund on a contingent event     even if paid by the fiduciary.                            ticipates.
for a taxable period for which the statute of limita-                                                                In the case of taxable years of an estate ending 
tions is about to expire. A protective claim is usually    Income Taxable to the Grantor or 
based on contingencies such as pending litigation or       Substantial Owner                                         less than two years after the date of death of the 
                                                                                                                     decedent, up to $25,000 of deductions and credit 
an ongoing federal income tax or an audit in another       Report on Form N-40 the part of the income that is        equivalents attributable to all rental real estate ac-
state. For more information see Tax Facts 2021-2.          taxable to the trust. Do not report on Form N-40 the      tivities  in  which  the  decedent  actively  participated 
                                                           income that is taxable to the grantor or another per-     is  allowed. Any  unused  losses  and/or  credits  are 
Simple and Complex Trusts                                  son. Instead, attach a separate sheet to report the       deemed “suspended” passive activity losses for the 
If the terms of the governing instrument of a trust        following:                                                year, and are carried forward indefinitely.
require that all of its income (determined under the       • The  income  of  the  trust  that  is  taxable  to  the If  the  estate  or  trust  distributes  any  interest  in 
governing instrument and Hawaii law) be distributed          grantor  or  another  person  under  sections  671      a passive activity, the basis of the property imme-
currently and do not provide that any amounts may            through 678.                                            diately  before  the  distribution  is  increased  by  the 
be paid, permanently set aside or used in the taxable      • The name, identifying number, and address of            passive activity losses allocable to the interest; and 
year for the charitable purposes specified in section        the person(s) to whom the income is taxable.            such losses are not allowable as a deduction. See 
642(c), such a trust may qualify as a “simple” trust                                                                 section 469(j).
under section 651(a). Such a trust is qualified un-        • Any deductions or credits applied to this income.
der section 651(a) only in those taxable years of the        On  page  1  at  the  top  of  Form  N-40,  write  the  Note: Losses from passive activities are first subject 
trust in which it does not distribute to a beneficiary     name,  identification  number,  and  address  of  the     to the at-risk rules. When the losses are deductible 
amounts other than amounts of income (determined           grantor(s)  or  other  person(s)  in  parentheses  after  under the at-risk rules, the passive activity rules then 
under  the  governing  instrument  and  local  law)  re-   the name of the trust.                                    apply.
quired to be distributed currently. Section 651(a) is        The  income  taxable  to  the  grantor  or  another     Portfolio income is not treated as income from 
not applicable to estates.                                 person under sections 671 through 678 and the de-         a  passive  activity,  and  passive  losses  and  credits 
Any trust which does not qualify for the taxable           ductions and credits applied to the income must be        generally may not be applied to offset it. Portfolio 
year under section 651(a) is treated as a “complex”        reported on the income tax return that person files.      income generally includes interest, dividends, royal-
                                                                                                                     ties, and income from annuities. Portfolio income of 
trust under section 661(a). All estates are treated un-      The grantor/trustee for a trust that was created        an estate or trust must be accounted for separately, 
der section 661(a) in the same manner as “complex”         in a tax year beginning on or after January 1, 1981,      and may not be offset by losses from passive activi-
trusts.                                                    should not file Form N-40. The grantor/trustee must       ties. See federal Form 8582, Passive Activity Loss 
Income in Respect of a Decedent                            furnish his or her social security number to payors       Limitations,  to  compute  the  amount  of  allowable 
                                                           of income and report all items of income, deduction,      passive activity loss.
Section  691  provides  for  the  inclusion,  when  re-    and credit from the trust on his or her Form N-11 or 
ceived,  in  gross  income  of  an  estate  or  trust  of  Form N-15.                                                Withholding of Taxes On the Income 
amounts of gross income which, although attribut-            The grantor/trustee for a trust described above,        of Nonresident Beneficiaries
able to the decedent, were not properly includable in      including grantor trusts created in tax years begin-
his or her return for any period up to the date of his     ning  before  1981,  who  has  previously  filed  Form    Pursuant to Act 232, SLH 2019, and applicable to 
or her death. This includes income from installment        N-40 and who wants to take advantage of the simpli-       taxable years beginning after December 31, 2018, 
obligations. The same section allows deductions for        fied reporting requirements in the future should file a   estates and trusts are required to withhold and pay 
business expenses, interest, taxes, etc., to the es-       Form N-40 for the current year and write on it “pur-      to the State on behalf of their nonresident benefi-
tate or other person receiving the property to which       suant to section 1.671-4(b), this is the final return for ciaries an amount equal to the highest marginal tax 
the deduction pertains.                                    this grantor trust.” A grantor/trustee who chooses this   rate applicable to individuals, currently 11%, multi-
These provisions apply for State purposes if the           option must furnish his or her social security number     plied by the amount of the beneficiary’s distributive 
decedent died on or after January 1, 1958. The tax-        to payors of income for the next year and report the      share of income attributable to the State reflected on 
able status of the income attributable to the dece-        trust income on his or her Form N-11 or Form N-15         the estate’s and trust’s return for the taxable period. 
dent is the same as if the decedent had lived and re-      for the next year and for future years. The grantor/      Form N-201V is used for reporting and paying this 
ceived the income. Thus, if the decedent was a resi-       trustee must not file Form N-40 for future years.         withholding by the estate or trust to the Department.

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OF SPECIAL INTEREST TO BANKRUPTCY TRUSTEES
AND DEBTORS-IN-POSSESSION
Taxation of Bankruptcy Estates of Special Filing Instructions Only for allocation was accomplished. For more details, in-
cluding acceptable allocation methods, see Notice
An Individual Bankruptcy Estates 2006-83, 2006-40 I.R.B. 596, available at www.irs.
For federal and State tax purposes, when an indi- Form N-40 is used ONLY as a transmittal for Form gov/irb/2006-40_IRB/ar12.html.
vidual files a petition under chapter 7 or 11 of the N-11, Hawaii Individual Income Tax Return (Resi-
United States Code, a separate taxable entity is cre- dent) or Form N-15, Hawaii Individual Income Tax Transfer of Tax Attributes From the
ated. See section 1398 and 11 U.S.C. section 346. Return (Nonresident and Part-Year Resident). Under Individual Debtor to the Bankruptcy
In a chapter 7 bankruptcy case, the trustee must ob- section 1398(c), the taxable income of the bankrupt- Estate
tain a Tax Identification Number (TIN) from the IRS cy estate generally is figured in the same manner as
and file the estate tax return. Unless a trustee has that of an individual, and includes any income includ- Under section 1398(g), the bankruptcy estate suc-
been appointed in a chapter 11 bankruptcy case, ed in property of the estate as defined in Bankruptcy ceeds to the following tax attributes of the individual
the debtor-in-possession must obtain a TIN for the Code sections 541 and 1115. The bankruptcy estate debtor:
estate and file any required tax return. Unless sub- of an individual is allowed one exemption. Complete • Net operating loss carryovers;
stantive consolidation has been ordered in a joint only the identification area at the top of Form N-40. • Charitable contributions carryovers;
petition, two separate bankruptcy estates and two The name of the bankruptcy estate should be en-
separate taxable entities are created. A TIN must tered on Form N-40 in the following format: • Recovery of tax benefit items;
be obtained for each, and a separate return filed for “John Q. Public Bankruptcy Estate” • Credit carryovers;
each estate. The TIN obtained from the IRS for the • Capital loss carryovers;
bankruptcy estate must be used in filing any required Beneath, enter the name of the trustee in the fol-
State estate tax returns. Do not use the individual’s lowing format: • Basis, holding period, and character of assets;
social security number when filing bankruptcy estate “Mary Kalikimaka, Trustee” • Method of accounting; and
tax returns. If the fiduciary’s address is outside the United • Other tax attributes that may be prescribed by
Caution: The individual debtor and the bankrupt- States or its possessions or territories, enter the the Department.
cy estate are separate taxable entities, with their information on the line for “City or town, State and
own separate tax filing requirements. Generally, Postal/ZIP Code” in the following order: city, province Income, Deductions, and Credits
the individual debtor retains his or her tax identity or state, postal code, and the name of the country. Under section 1398(c), the taxable income of the
and must file his or her own personal tax returns, Do not abbreviate the country name. Be sure to in- bankruptcy estate generally is figured in the same
and the trustee or debtor-in-possession, as ap- clude the TIN of the estate. manner as that of an individual. The gross income of
plicable, files the required returns of the estate. The “Date Entity Created” is the date on which the bankruptcy estate includes any income included
The filing of a tax return for the bankruptcy estate the petition was filed, or the date of conversion to in property of the estate as defined in U.S. Code, title
does not relieve the individual debtor of his or her a chapter 7 or 11 case. Be sure to note the period 11, sections 541 and 1115.
(or their) individual tax obligations. covered by the return, since a bankruptcy estate is Caution: Earnings from services performed by
Note: A separate taxable entity is not created if a allowed to have a fiscal year. If a fiscal year is select- an individual debtor in a chapter 11 case after
partnership or corporation files a petition under any ed, the period can be no longer than 12 months and the commencement of the chapter 11 case are
chapter of title 11 of the U.S. Code. For additional the tax return due date is on or before the 20th day property of the bankruptcy estate under section
information about bankruptcy estates, please refer to of the fourth month following the close of the fiscal 1115 of the Bankruptcy Code (11 U.S.C. sec-
Publication 908, Bankruptcy Tax Guide. year. If a fiscal year is chosen, it must be the same tion 1115). In addition, income from property ac-
for the federal return. quired after the beginning of the case is taxable
Who Must File Then, prepare a Form N-11 or N-15 (as appropri- to the estate.
Every trustee (or debtor-in-possession) for an indi- ate) to report the income and deductions to which To determine whether any amount paid or in-
vidual’s bankruptcy estate under chapter 7 or 11 of the estate is entitled. Enter only the name of the curred by the bankruptcy estate is allowable as a de-
title 11 of the United States Code, must file a return bankruptcy estate in the “Name” section of the Form duction or credit, or is treated as wages for employ-
if the bankruptcy estate has gross income for the tax N-11 or N-15 as follows: ment tax purposes, treat the amount as if it was paid
year beginning in 2023 of $3,344 or more. First Name: “John Q. Public” or incurred by the individual debtor in the same trade
When To File Last Name: “Bankruptcy Estate” or business or other activity the individual debtor en-
gaged in before the bankruptcy proceedings began.
Also, enter the estate’s TIN in place of the so-
File Form N-40 on or before the 20th day of the cial security number. Do not otherwise complete the Administrative expenses.—The bankruptcy es-
fourth month following the close of the tax year. Sec- identification portion of the Form N-11 or N-15. In the tate is allowed a deduction for any administrative
tion 18-235-98, HAR, allows an automatic six-month top margin of each page of the Form N-11 or N-15, expense allowed under section 503 of title 11 of the
extension of time to file without filing an application write “Attachment to Form N-40. DO NOT DETACH U.S. Code, and any fee or charge assessed under
for extension. This extension does not include an ex- OR PROCESS.” When completed, attach the Form chapter 123 of title 28 of the U.S. Code, to the extent
tension of time to pay. File Form N-201V, Business N-11 or N-15 to the Form N-40. not disallowed under an IRC provision.
Income Tax Payment Voucher, to make a payment
(if applicable). File Form N-201V by the regular due Calculate the taxable income based on the in- Administrative expense loss.—When figuring a
date of Form N-40. Form N-201V can be filed and come and deductions of the estate by completing NOL, nonbusiness deductions (including adminis-
payment made electronically through the State’s In- lines 7 through 26 (Form N-11) or lines 7 through 43 trative expenses) are limited under section 172(d)
ternet portal at hitax.hawaii.gov. (Form N-15). (4) to the bankruptcy estate’s nonbusiness income.
Disclosure of Return Information Note: In a chapter 11 case filed after October 16, The excess nonbusiness deductions are an admin-
2005, the allocations used for federal tax purposes istrative expense loss that may be carried back to
Under section 235-116, HRS, tax returns of indi- must be used to allocate any State tax items, in- each of the three preceding tax years and forward
vidual debtors who have filed for bankruptcy under cluding any taxes withheld at the source. If any in- to each of the seven succeeding tax years of the
chapter 7 or 11 of title 11 are, upon written request, come was allocated, the debtor-in-possession (or bankruptcy estate. The amount of an administrative
open to inspection by or disclosure to the trustee. the chapter 11 trustee, if one was appointed) must expense loss that may be carried to any tax year
The returns subject to disclosure to the trustee are attach a schedule that shows (a) all the income re- is determined after the NOL deductions allowed for
those for the year the bankruptcy begins and prior ported on the Form W-2, Form 1099, or other infor- that year.
years. Use Form L-72, Request for Copies of Hawaii mation return, (b) the portion of this income includ- Caution: An administrative expense loss is al-
Tax Return (available at any District Tax Office), to ible in the bankruptcy estate’s gross income, and (c) lowed only to the bankruptcy estate and cannot
request copies of the individual debtor’s tax returns. all the withheld income tax, if any, and the portion of be carried to any tax year of the individual debtor.
If the bankruptcy case was not voluntary, disclosure withheld tax reasonably allocated to the bankruptcy
cannot be made before the bankruptcy court has en- estate. Attach a copy of the Form W-2, if any, is- Carryback of NOLs.— For NOLs arising in tax-
tered an order for relief, unless the court rules that sued to the individual debtor for the tax year if any able years ending after December 31, 2017, Act 27,
the disclosure is needed for determining whether allocation is required because of Bankruptcy Code SLH 2018, eliminates NOL carrybacks (except for
relief should be ordered. section 1115. In addition, if any deduction or credit farming NOLs which are permitted a two-year car-
was allocated, attach a schedule showing how such ryback), and allows unused NOLs to be carried for-

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ward indefinitely. Also, the NOL deduction is limited the tax if the estate has any such gains, as this may is pending. Send the request to the address noted
to 80% of taxable income for taxable years begin- potentially lower the tax liability. below. Mark the envelope with “Request for Prompt
ning after December 31, 2017. (See the Note under Enter this computed tax on Form N-11, line 27 or Determination.” The Department will notify the trust-
“Amended Return” on page 2.) Form N-15, line 44. Determine the amount of tax due ee or debtor-in-possession within 60 days from re-
You may elect to carry the farming NOL forward after any credits that the bankruptcy estate is entitled ceipt of the request if the return filed by the trustee or
instead of first carrying it back to prior years. If you to claim. Be sure to attach all applicable forms re- debtor-in-possession has been selected for exami-
make this election, then you can use your farming quired to claim the credit, as well as any required nation or has been accepted as filed. If the return is
NOL only in the carryforward period. To make this schedules. Claim all credits to which the bankruptcy selected for examination, it will be examined as soon
election, attach a statement to your original return estate is entitled to on Form N-11 or N-15 as applica- as possible. The Department will notify the trustee or
filed by the due date (including extensions) for the ble. Do not claim these credits by filling out the credit debtor-in-possession of any tax due within 180 days
farming NOL year. This statement must state that sections of the Form N-40. Also, remember that non- from receipt for the request or within any additional
you are electing to waive the carryback period un- refundable credits may not decrease the amount of time permitted by the bankruptcy court.
der section 235-7(d), HRS, and IRC section 172(b) tax owed below zero. Where to File
(1)(B)(iv). Once the amount of credits that the bankruptcy
Exemption.—A bankruptcy estate is allowed a per- estate is entitled to has been determined, enter the All bankruptcy estate tax returns (including requests
sonal exemption of $1,144. amount from line 36 of Form N-11 or line 53 of Form for prompt determination) must be mailed to:
N-15 on Form N-40, Schedule G, lines 1, 3, and 5. Hawaii State Tax Collector
Standard deduction.—A bankruptcy estate that Enter on Form N-11 or N-15 any tax withheld, Bankruptcy Unit
does not itemize deductions is allowed a standard estimated tax payments, or amounts paid with ex- P. O. Box 259
deduction of $2,200. tension. If any withheld tax reported on a Form W-2 Honolulu, HI 96809-0259
Discharge of indebtedness.—In a title 11 case, has been allocated between the bankruptcy estate Do not mail bankruptcy estate tax returns to any
gross income does not include amounts that nor- and the individual debtor, be sure to attach the al- other address.
mally would be included in gross income resulting location schedule. Any tax payments reported on
from the discharge of indebtedness. However, any Form N-288A should be included in the amount of Dismissal of Bankruptcy Case
amount excluded from gross income must be ap- estimated tax paid. Be sure to attach the form to the
plied to reduce certain tax attributes in a certain or- return. Determine the amount of total payments (line If the bankruptcy court later dismisses an individual’s
der. 41 of Form N-11 or line 58 of Form N-15) and also chapter 7 or 11 case, the bankruptcy estate is no
enter this amount on Form N-40, Schedule G, line 7. longer treated as a separate taxable entity. It is as
Use federal Form 982, Reduction of Tax Attri- Complete lines 8 through 15 of Schedule G. Be sure if no bankruptcy estate was ever created for tax pur-
butes Due to Discharge of Indebtedness, to show to sign and date the Form N-40. poses. In this situation, the debtor must file amended
the reduction of tax attributes. However, for Hawaii tax returns on Form N-11 or N-15 to replace all full or
purposes the following reductions are not operative Prompt Determination of Tax short year individual returns and bankruptcy estate
and are not allowed as exclusions: Liability returns filed as result of the bankruptcy case. Any
• General business credit; income, deductions, and credits previously reported
To request a prompt determination of the tax liability by the bankruptcy estate on its tax return must be
• Minimum tax credit; and of the bankruptcy estate, the trustee or debtor-in- reported on the debtor’s amended returns. Attach a
• Foreign tax credit carryovers. possession must file a written request for the deter- statement to the amended returns explaining why
mination with the Department. The request must be the debtor is filing an amended return, and be sure
Tax Rate Schedule accompanied by the original return which must be to check the “Amended” box on the applicable form.
Once the amount of taxable income of the estate is executed under penalties of perjury plus a duplicate. Caution: An individual may not deduct adminis-
determined (line 26 of Form N-11 or line 43 of Form The request must include a statement indicating that trative expenses incurred by the bankruptcy es-
N-15), also enter this amount on line 22 of Form it is a request for prompt determination of tax liabil- tate if a bankruptcy case is dismissed as these
N-40. Calculate the amount of tax for the bankruptcy ity and: (a) the return type, and all the tax periods are considered to be personal nondeductible
estate using the tax table or the tax rate schedule for for which prompt determination is sought; (b) the expenses. The taxpayer may deduct only those
a married individual filing a separate return. Be sure debtor’s name; (c) the debtor’s SSN, TIN, or EIN; expenses allowable had a bankruptcy not been
to complete the capital gain worksheet to determine (d) the type of bankruptcy estate; (e) the bankruptcy filed.
case number; and (f) the court where the bankruptcy

HOW TO FILL IN FORM N-40
The specific instructions that follow this section to call the Department for information about the pro- ITPS-COA, Change of Address Form, or log in to
explain how all trusts and estates should fill in the cessing of your return or for other issues relating to your Hawaii Tax Online account at hitax.hawaii.
form. your return. This designation does not take the place gov. Failure to do so may prevent your address from
Trusts and estates, may authorize the Depart- of a power of attorney for other return related mat- being updated, any refund due to you from being
ment to discuss its tax return with its paid preparer ters. Form N-848 must still be used to grant a power delivered (the U.S. Postal Service is not permitted
by checking the “Yes” box above the paid preparer’s of attorney. to forward your State refund check), and delay im-
portant notices or correspondence to you regarding
signature. Checking “Yes” will allow the Department Change of Address your return.
to contact the paid preparer to answer any questions
that may arise during the processing of the return. If your mailing address has changed, you must notify
This designation does not allow your paid preparer the Department of the change by completing Form

SIMPLE TRUSTS WITHOUT CAPITAL GAINS (OR LOSSES) MAY USE THE FOLLOWING-
DESCRIBED SHORT-FORM METHOD OF COMPLETING THEIR RETURNS
(a) Reporting Income and deductions. Fill in than the amount of income required to be distributed If the amount shown on line 18 exceeds the
page 1, lines 1 through 19 in accordance with spe- currently, enter on line 19 the amount shown on line amount of income required to be distributed cur-
cific instructions. 18 and enter zero on line 22. Schedule G (Form rently less nontaxable income, enter on line 19 the
(b) Determine taxable income and tax of fidu- N-40) need not be completed. amount of income required to be distributed current-
ciary. If the amount shown on line 18 is not more ly and complete the remainder of page 1.

SPECIFIC INSTRUCTIONS FOR RESIDENT ESTATES AND TRUSTS
Income taxable year, the beneficial interest in the trust is held All income earned and proceeds derived from
by a nonresident beneficiary(ies). This exclusion stock options or stock, including stock issued
General Instructions does not apply, however, to income received from through the exercise of stock options or warrants,
real property held in a land trust formed under Chap- from a qualified high technology business or from a
Any intangible income, such as dividends and inter- ter 558, HRS. holding company of a qualified high technology busi-
est, shall be excluded from the gross income earned ness by an employee, officer or director of the quali-
by a resident trust to the extent that, during the trust’s fied high technology business, or investor who quali-

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fied for the high technology business investment tax instrument. If the trust instrument does not specify, Deductions
credit is excluded from income. divide the deductions on the same basis as the trust
instrument provides for dividing the income between General Instructions
Rounding Off to Whole Dollars the fiduciary and the beneficiaries. For an estate,
The Department is requiring taxpayers to round divide the deductions for amortization, depreciation, Allocation of deductions for tax-exempt in-
off cents to the nearest whole dollar for all dollar en- and depletion between the estate and the beneficia- come.—All deductions entered on lines 10
tries on the tax return and schedules. To do so, drop ries in the same way the estate income is allocated through 16 must include only the fiduciary’s share
amounts under 50 cents and increase amounts from to each. See federal Regulations sections 1.642(e)- of deductions related to taxable income. If the es-
50 to 99 cents to the next dollar. For example $1.39 1, 1.642(f)-1, 1.167(h)-1, and 1.611-1(c) for more tate or trust has tax-exempt income, the amount
becomes $1 and $2.69 becomes $3. If you have to information about the division of these deductions. included on lines 10 through 16 must be reduced
add two or more amounts to figure the amount to If the estate or trust has a loss from an activity, see by the allocable portion attributed to tax-exempt
enter on a line, schedule, or worksheet, you may “At-Risk Loss Limitations” and “Passive Activity Loss income. However, see the Exception below. The
choose to use one of two methods. Once a method Limitations” discussed earlier. allocable amounts to be included on lines 10
through 16 are determined as follows:
of rounding is established, you must use the same Attach federal Form 4562, Depreciation and
method throughout the return. The first method is to Amortization, to explain any depreciation, and amor- 1. Determine the percentage of tax-exempt income
include the cents when adding and round off only the tization deduction. Attach a separate computation for to gross income.—Divide the total tax-exempt in-
total. The other method is to round off each entry. For any depletion deduction. come received by the total of all items of gross
example: You received two W-2 forms, one showing income (including tax-exempt income) included
Hawaii withholding of $50.55 and one showing Ha- Note: An estate or trust cannot make an election in distributable net income (DNI).
waii withholding of $185.73. For rounding method 1, under section 179 to expense certain depreciable 2. Determine the excludable amount of each spe-
show your total Hawaii withholding as $236, ($50.55 business assets. cific deduction.—Multiply the percentage of tax-
+ $185.73 = $236.28 rounded to $236). For round- exempt income by each specific deduction.
ing method 2, show your total Hawaii withholding as Line 5. Net business and farm income or (loss).—
$237 ($50.55 rounded to $51.00 + $185.73 rounded Enter the net profit or loss from business and farm- 3. Determine the amount deductible on lines 10
to $186.00 = $51 $186 = $237). ing during the tax year. Attach federal Schedule C, through 16.—Subtract the excludable amount
Profit or Loss from Business, to report the business of each specific deduction from the specific de-
Line-by-Line Instructions income or loss. Attach federal Schedule F, Profit or duction and enter the balance on the appropriate
Loss From Farming, to report the farm income or line.
Line 1. Interest income.—Enter the fiduciary’s loss. Complete all information on federal Schedules For more information, see Publications 550 and
share of all taxable interest income including any C and F that applies to the estate or trust. See the 559.
original issue discount, and income received as a instructions for lines 4 and 15 for more information
regular interest holder of a Real Estate Mortgage on dividing the deductions for amortization, depre- EXCEPTION. Expenses for royalties and other
Investment Conduit (REMIC). For taxable bonds ciation, and depletion between the fiduciary and the income derived from any patents, copyrights, and
acquired after December 31, 1987, amortizable beneficiaries. trade secrets which are excluded from net income
bond premium is treated as an offset to the interest are now deductible for a qualified high technology
income instead of as a separate interest deduction. Line 6. Capital gain or (loss).—Enter from Sched- business.
See Publication 550. ule D (Form N-40) the gain or loss from the sale or
exchange of capital assets. Accrued expenses.—Generally, an accrual basis
Line 2. Ordinary Dividends.—Enter the fiduciary’s taxpayer can deduct accrued expenses in the tax
share of all taxable dividends received by the estate Line 7. Ordinary gain or (loss).—Enter from year that: (1) all events have occurred that deter-
or trust. Schedule D-1 the gain or loss from the sale or ex- mine the liability; and (2) the amount of the liability
change of property other than capital assets and can be figured with reasonable accuracy. However,
Line 3. Income or (losses) from partnerships, also from involuntary conversions (other than casu- all the events that establish liability are treated as
other estates or other trusts.—Enter on line 3 all alty or theft). For more information, see the instruc- occurring only when economic performance takes
income or (losses) from partnerships except the tions for Schedule D-1. place. There are exceptions for recurring items. See
following: section 461(h).
• Interest (enter on line 1) Line 8. Other Income.—Enter the total taxable in-
come not reportable elsewhere. State the nature of Line-by-Line Instructions
• Ordinary Dividends (enter on line 2) the income. Attach a separate sheet if necessary.
Line 10. Interest.—Enter any deductible interest
• Capital gain or (loss) (enter on Schedule D Form Examples of income to be reported on line 8 paid or accrued that is not deductible elsewhere on
N-40). are: Form N-40. Do not include interest on a debt that
• Ordinary gain or (loss) (enter on Schedule D-1). • Wages and salaries received by the decedent’s was incurred or continued in order to buy or carry
Attach a copy of federal Schedule E, Supple- estate that are income in respect of a decedent. obligations that yield tax-exempt interest. If unpaid
mental Income Schedule, to the return. See Publication 559 for more information. interest is due to a related person, see Publication
Line 4. Rent and royalty income or (loss).—En- • The estate’s or trust’s share of aggregate income 550, Investment Income and Expenses.
ter the net rent and royalty income or loss on line or loss that is ordinary income if the estate or Fully deductible interest includes:
4. Attach federal Schedule E, Supplemental Income trust is a shareholder of an S corporation. Also
Schedule, to show the fiduciary’s share of income state the name and FEIN of the corporation. Re- (1) interest paid or accrued on indebtedness in-
and expenses including depreciation and depletion. port capital gain income, dividend income, etc., curred in connection with the conduct of a trade
This may or may not be the same as the amount on other appropriate lines. or business;
shown on federal Form 1041. • The estate’s or trust’s share of taxable income or (2) any investment interest (subject to limitations);
Hawaii has not adopted federal bonus deprecia- (loss) if the estate or trust is a residual holder of (3) any “qualified residence interest”; or
tion provisions. If a depreciation deduction is claimed a REMIC. You should receive federal Schedule (4) any interest payable under section 6601 on any
for Hawaii tax purposes, the fiduciary must: (a) com- Q (Form 1066) and instructions from the REMIC unpaid portion of the estate tax attributable to the
plete a federal Form 4562 for Hawaii tax purposes for each quarter. See the federal instruction for value of a reversionary or remainder interest in
using the federal depreciation guidelines in effect Schedule E for reporting requirements, and at- property, or an interest in a closely held business
before the adoption of the bonus depreciation provi- tach federal Schedule E. for the period during which an extension of time
sions, (b) attach the completed federal Form 4562 • Any part of a total distribution shown on federal for payment of such tax is in effect.
to the Hawaii tax return, (c) make the necessary Form 1099-R, Distributions From Pensions, Interest paid or accrued by an estate or trust on
adjustments to the Hawaii tax return for the depre- Annuities, Retirement or Profit-Sharing Plans, indebtedness secured by a qualified residence of a
ciation difference between federal and Hawaii, and IRAs, Insurance Contracts, etc., that is treated beneficiary of an estate or trust is treated as “quali-
(d) attach to the Hawaii tax return any worksheet as ordinary income. For more information, see fied residence interest” if the residence would be a
showing the computation of the adjustments. The the separate instructions for Form N-152, Tax on qualified residence (i.e., the principal residence or
fiduciary must also keep records of the differences in Lump-Sum Distributions. the second residence selected by the beneficiary) if
the asset’s depreciable basis for federal and Hawaii Also see Miscellaneous Taxable Income, in Pub- owned by the beneficiary. The beneficiary must have
tax purposes. lication 525, Taxable and Nontaxable Income for a present interest in the estate or trust or an interest
For a trust, divide the deductions for amortiza- more information. in the residuary of the estate or trust. See Publica-
tion, depreciation, and depletion between the fidu- tion 936, Home Mortgage Interest Deduction, for an
ciary and the beneficiaries as specified in the trust

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explanation of the general rules for deducting home Line 15. Other deductions NOT subject to the 2% any extension. Attach a statement to your amend-
mortgage interest. floor.—Use Schedule C (Form N-40) on page 3 to ed return, and write “Filed pursuant to 26 C.F.R.
See section 163(h)(3) for a definition of “qualified list all authorized deductions that are not deductible 301.9100-2” at the top of the statement. Also include
residence interest” and limitations on indebtedness. elsewhere on Form N-40. the statement noted above that you are waiving the
Generally, “investment interest” is interest (in- Special instructions for charitable remainder carryback period. Once you elect to waive the car-
cluding amortizable bond premium on taxable bonds trusts.—Compute the taxable income and enter the ryback period, it cannot be changed later. If you do
acquired after 10/22/86, but before 1/1/88) that is amount on line 15 as an adjustment to result in no not file this statement on time, the carryback period
paid or accrued on indebtedness that is properly al- taxable income on line 22. cannot be waived and you must first carry the farm-
ing NOL back before carrying it forward.
locable to property held for investment. Investment Include on Schedule D (Form N-40) as losses on
interest does not include any “qualified residence capital assets, any losses on worthless bonds and Hawaii has not adopted changes to the federal
interest,” or interest that is taken into account under similar obligations and nonbusiness bad debts. tax law that eliminates certain loss limitation rules
for restructurings under the Troubled Asset Relief
section 469 in computing income or loss from a pas- See Publication 550 for more information on ex- Program authorized by the Emergency Economic
sive activity. penses of producing income. Stabilization Act of 2008.
Generally, net investment income is the excess Bond premium(s).—The rules for amortizing For more information, see Publication 536,
of investment income over investment expenses. In- bond premiums are different for taxable bonds and Net Operating Losses for Individuals, Estates, and
vestment expenses are those expenses (other than tax-exempt bonds. Trusts, and Form N-109, Application for Tentative
interest) allowable after application of the 2% floor
on miscellaneous itemized deductions. For taxable bonds acquired before 10/23/86: Refund. If you claim an NOL deduction for the es-
tate or trust, figure the deduction on a separate sheet
The amount of investment interest deduction • You may elect to amortize the premium. and attach it to this return.
may be limited. Use Form N-158, Investment Inter- • Only the fiduciary may make the election for the Fiduciary’s share of amortization, depreciation,
est Expense Deduction, to compute the allowable estate or trust. and depletion not claimed elsewhere.—If you can-
investment interest deduction.
• The basis must be reduced if you elect to am- not deduct the amortization, depreciation, and deple-
Any disallowed investment interest expense is ortize. tion as rent or royalty expenses on federal Sched-
allowed as a carryforward to the next tax year. See ule E, or as business or farm expenses on federal
section 163(d) and Publication 550, for more infor- For tax-exempt bonds: Schedules C and F, itemize the fiduciary’s share of
mation. • You must amortize the premium. the deductions on Schedule C. Then include them
If the allowable part of the excess investment • You may not deduct the amortization of premium on line 15. Itemize each beneficiary’s share of the
interest expense is deductible, write “Form N-158 at- from income. deductions on the appropriate line of Schedule K-1
tached” on line 10. Then add the deductible interest (Form N-40). See the instructions for Schedule K-1
figured on Form N-158 to the other types of deduct- • The basis must be reduced by the amortization for more information, including the rules for dividing
ible interest and enter the total on line 10. of the premium. the deductions between the fiduciary and the ben-
Personal interest is not deductible. This includes For more information, see section 171 and Pub- eficiaries.
interest paid on: lication 550. Restricted deductions.—For the special rules on
• Revolving charge accounts. If you claim a bond premium deduction for the real property construction period interest and taxes
estate or trust, figure the deduction on a separate for trade or business and activities conducted for
• Personal notes for money borrowed from a bank, sheet and attach it to this return. profit, see Publication 535, Business Expenses.
credit union, or another person.
Casualty and theft losses.—Use federal Form For information on unpaid expenses due related
• Installment loans on personal property. 4684, Casualties and Thefts, to report casualty and persons, see Publication 550.
• Taxes. theft losses. For the rules on the tax year for which a deduc-
Line 11. Taxes.—Enter any deductible taxes paid or If you have any sales, exchanges, or involuntary tion is claimed, including the limit for expenses paid
accrued during the tax year that are not deductible conversions (other than casualty or theft) of prop- in advance, see Publication 538.
elsewhere on Form N-40. State and local sales tax- erty used in a trade or business, or any involuntary For the limit on deductions for certain farming
es are not deductible. Instead, they are to be treated conversions (other than casualty or theft) of certain syndicates, see Publication 535.
as part of the cost of the property upon acquisition, capital assets, use Schedule D-1.
or as a reduction in the amount realized upon dis- NOL deduction.—An estate or trust is allowed Line 16. Allowable miscellaneous itemized de-
position. the NOL deduction under section 172. In comput- ductions subject to the 2% floor.—Miscellaneous
ing the NOL, exclude that portion of the income and itemized deductions are deductible only to the extent
Deductible taxes include: deductions attributable to the grantor under sections that the aggregate amount of such deductions ex-
• State and local income or real property tax. 671 through 678. Also, the charitable contribution ceeds 2% of adjusted gross income (AGI).
deduction under section 235-2.45(a)(2), HRS, and The term “miscellaneous itemized deductions”
Nondeductible taxes include: the income distribution deductions under sections does not include deductions relating to:
• Federal income and excise taxes. 651 and 661 are not allowed. • Interest under section 163.
• Customs duties. For NOLs arising in taxable years ending after • Taxes under section 164.
• State and local sales taxes. December 31, 2017, Act 27, SLH 2018, eliminates
NOL carrybacks (except for farming NOLs which Note: The itemized deduction for state and for-
• Federal estate taxes, but see the instructions for are permitted a two-year carryback), and allows un- eign income taxes paid to another state or for-
line 20 and Income in Respect of a Decedent in used NOLs to be carried forward indefinitely. Also, eign country is disallowed if the taxpayer has
the General Instructions. the NOL deduction is limited to 80% of taxable in- claimed the credit for income taxes paid to other
Note: Act 27, SLH 2018, does not adopt the federal come for taxable years beginning after December states and countries.
provision that limits the deduction for state and lo- 31, 2017. (See the Note under “Amended Return” • The amortization of bond premium under section
cal taxes to $10,000 ($5,000 for a married taxpayer on page 2.) 171.
filing a separate return) for tax years 2018 through You may elect to carry the farming NOL forward • Estate taxes in the case of income in respect of a
2025. instead of first carrying it back to prior years. If you decedent under section 691(c).
make this election, then you can use your farming For more exceptions, see section 67(b).
Line 12. Fiduciary fees.—Enter the total deductible NOL only in the carryforward period. To make this
fees paid to the fiduciary for administering the estate election, attach a statement to your original return For estates and trusts, the AGI is computed by
or trust during the tax year. filed by the due date (including extensions) for the subtracting the following from total income (line 9):
Line 13. Charitable deduction.—Enter the total farming NOL year. This statement must state that (1) the administration costs of the estate or trust (the
from Schedule A (Form N-40) line 6 or 7(c). you are electing to waive the carryback period un- total of lines 12, 14, 15, and 16 to the extent they
der section 235-7(d), HRS, and IRC section 172(b) are costs incurred in the administration of the es-
Line 14. Attorney, accountant, and return prepar- (1)(B)(iv). tate or trust) that would have not been incurred
er fees.—Enter the deductible attorney, accountant, If you filed your original return on time but did if the property were NOT held by the estate or
and return preparer fees paid for the estate or trust not file the statement with it, you can make this elec- trust;
during the tax year. tion on an amended return filed within 6 months of (2) the income distribution deduction under section
the original due date of the return, but not including 651 or 661 (line 19);

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(3) the amount of the exemption (line 20); and             out regard to any miscellaneous itemized deduc-              Schedule A — Page 2 
(4) other deductions claimed on lines 10 through 15        tions); less the AMID.
                                                                                                                        Treatment of charitable 
that were incurred in the conduct of a trade or            Thus, DNI = (line 9) - (line 17 column (b) of Sched-         contributions; computation 
business, or the production of income.                     ule D (Form N-40)) - (line 17) - (AMID)
Allowable  administration  costs  are  those  costs                                                                     of charitable deduction
incurred with the administration of the estate or trust    Substitute the known values:
which would not have been incurred if the property         DNI = 35,000 - 20,000 - 2,000 - AMID                         General Instructions
were not held in such estate or trust. These adminis-      DNI = 13,000 - AMID                                          Subject to certain limitations, an estate or trust (other 
tration costs are not subject to the 2% floor.                                                                          than  a  simple  trust)  shall  be  allowed  a  deduction 
                                                           Substitute  the  value  of  DNI  into  the  equation  to     for any amount of gross income which pursuant to 
For those estates and trusts whose income dis-             solve for AMID:                                              the  terms  of  the  governing  instruments  is,  during 
tribution deduction is limited to the actual distribution, 
and NOT the DNI, (i.e., the net income distribution is     AMID = 1,500 - (.20(32,920-(13,000-AMID)))                   the taxable year, paid or permanently set aside for 
less than the DNI) when computing the AGI, use the         AMID = 1,500 - (.02(32,920 - 13,000 + AMID))                 a  purpose  specified  in  section  170(c),  or  is  to  be 
amount of the actual distribution.                         AMID = 1,500 - (658 - 260 + .02 AMID)                        used exclusively for religious, charitable, scientific, 
                                                           AMID = 1,102 - .02 AMID                                      literary, or educational purposes, or for the preven-
For those estates and trusts whose income dis-             AMID = 1,080                                                 tion of cruelty to children or animals, or for the es-
tribution deduction is limited to the DNI (i.e., the ac-   DNI = 11,920                                                 tablishment, acquisition, maintenance, or operation 
tual distribution exceeds the DNI), the DNI must be        AGI = 21,000 (i.e., 32,920 - 11,920)                         of  a  public  cemetery  not  operated  for  profit.  This 
computed taking into account the allowable miscel-                                                                      deduction is not subject to any percentage limitation 
laneous itemized deductions (AMID) after applica-          Note: The  income  distribution  deduction  is  equal        if the charitable contributions are to be used exclu-
tion of the 2% floor. In this situation there are two      to the lesser of the distribution ($17,500) or the DNI       sively in Hawaii (unless the limitations of section 681 
unknown amounts: the AMID; and the DNI.                    ($11,920).                                                   apply). Under Chapter 235, HRS, the deduction is 
The following example illustrates how an alge-             Enter  the  value  of  AMID  on  line  16  (the  DNI         the sum of (a) the amount to be used exclusively in 
braic equation can be used to solve for these un-          should equal line 9 of Schedule B) and complete the          Hawaii and (b) the excess of the total contributions 
known amounts:                                             rest of Form N-40 according to the instructions.             over  the  amount  of  contributions  used  exclusively 
                                                                                                                        in Hawaii. The amount determined in (b) is subject 
The  Malcolm  Smith  Trust,  a  complex  trust,            Line 18. Adjusted total income or (loss).—If you             to  the  same  limitations  applicable  to  contributions 
earned  $20,000  of  dividend  income,  $20,000  of        are filing for a year other than the final year, and line    made by individuals. These limitations are computed 
capital gains, and a fully deductible $5,000 loss from     17 is more than line 9, you may have an NOL. Use             as follows: (1) the amount actually paid within the 
XYZ partnership (chargeable to corpus) in 2023. The        Form N-109, Application for Tentative Refund.                taxable years to a church, educational organization, 
trust instrument provides that capital gains be added 
to corpus. 50% of the fiduciary fees were allocated        Note:  For NOLs arising in taxable years ending after        or hospital, qualified under section 170(b)(1)(A) but 
to income and 50% to corpus. The trust claimed a           December 31, 2017, Act 27, SLH 2018, eliminates              not in excess of 50% of taxable income (page 1, line 
$2,000 deduction on line 12 of Form N-40. The trust        NOL carrybacks (except for farming NOLs which are            22,  computed  without  any  charitable  contributions 
incurred  $1,500  of  miscellaneous  itemized  deduc-      permitted a two-year carryback), and allows unused           deduction on line 13 or the exemption on line 20), 
tions (chargeable to income), which are subject to         to be carried forward indefinitely. Also, the NOL de-        plus (2) any other amount actually paid other than 
the  2%  floor. There  are  no  other  deductions. The     duction is limited to 80% of taxable income for tax-         a charitable contribution to which section 170(b)(1)
trustee made a discretionary distribution of the ac-       able years beginning after December 31, 2017. (See           (A) applies shall be allowed as a deduction to the ex-
counting income of $17,500 to the trust’s sole ben-        the Note under “Amended Return” on page 2.)                  tent that the aggregate of such contribution does not 
                                                                                                                        exceed the lesser of: (a) 20% of the taxable income 
eficiary.                                                  If you are filing for the final year, and the amount         (page 1, line 22, computed without any charitable 
Since the actual distribution can reasonably be            on line 17 is more than the amount on line 9, then           contribution on line 13 or exemption on line 20), or 
expected to exceed the DNI, the trust must compute         you  have  excess  deductions.  Excess  deductions           (b) the excess of 50% of the taxable income (page 1, 
the DNI, taking into account the allowable miscella-       can only be distributed to a beneficiary on the final        line 22, computed without any charitable contribution 
neous itemized deductions, to determine the amount         return of the estate or trust. For more information,         or exemption on line 20) for the taxable year over the 
to be entered on line 16.                                  see the instructions for Schedule K-1, line 8.               amount of charitable contributions qualifying for the 
The trust also claims an exemption of $80 on line          Line  19.  Income  distribution  deduction.—If  this         50% deduction ceiling.
20.                                                        trust is other than a “Simple Trust” or “Pooled Income       “Charitable contributions” means any amount of 
To compute line 16, solve the equation below:              Fund,” complete Schedule B on page 2. However,               gross income which is paid, permanently set aside, 
                                                           if line 18 is equal to or less than zero and no distri-      or used in such manner as to qualify for the chari-
AMID = total miscellaneous itemized deductions             butions were actually made or available on demand            table contributions deduction (except for the special 
- (.02(AGI))                                               to the beneficiaries in the tax year, do not complete        limitation in Chapter 235, HRS).
In the above example:                                      Schedule B.
AMID = 1,500 - (.02(AGI))                                  Cemetery perpetual care fund.—On line 19, de-                Line-by-Line Instructions
                                                           duct the amount, not more than $5 per gravesite,             Line 1.—Enter on this line the full amount paid or 
In all situations, use the following equation to com-      paid for maintenance of cemetery property. Write the         permanently  set  aside  for  the  purposes  described 
pute the AGI:                                              number of gravesites to the right of the entry space         above out of the current year’s income. This does 
AGI = (line 9) - (the total of lines 12, 14, and 15 to     for line 19. Also write “Section 642(i) trust” in paren-     not  include  capital  gains  allocable  to  corpus,  but 
the extent they are costs incurred in the adminis-         theses after the trust’s name at the top of Form N-40.       does include capital gains which are treated as in-
tration of the estate or trust that would have not         You do not have to complete Schedule B of (Form              come  under  the  governing  instrument  and  Hawaii 
been incurred if the property were NOT held by             N-40) and Schedule K-1 (Form N-40).                          law.  Capital  gains  reported  on  Schedule  D  (Form 
                                                                                                                        N-40), which are allocable to corpus, should be en-
the estate or trust) - (line 19) - (line 20)               Line 20. Deduction for personal exemption.—An                tered on line 4.
In the above example:                                      estate is allowed a deduction of $400. A trust which, 
                                                           under its governing instrument, is required to distrib-      Line 2.—This line provides for an adjustment of the 
AGI = 35,000 - 2,000 - DNI - 80                            ute all of its income currently, is allowed a deduction      charitable  contributions  attributable  to  income  of 
Since the value of line 19 is not known because it         of $200; all other trusts are allowed a deduction of         the current year (line 1), so that the charitable de-
is limited to the DNI, you are left with the following:    $80.                                                         duction will not include contributions attributable to 
AGI = 32,920 - DNI                                                                                                      tax-exempt interest or other nontaxable income. In 
                                                           Hawaii estate and generation skipping transfer taxes         the absence of specific provisions in the governing 
Substitute the value of AGI in the equation:               are deductible if they were paid during the year that        instrument, enter on line 2(a) the result obtained by 
AMID = 1,500 - (.02(32,920 - DNI))                         the income in respect of a decedent is includible in         multiplying line 1 by the total of all tax-exempt inter-
                                                           income. The deduction should be included on this             est and other income which is nontaxable irrespec-
The equation cannot be solved until the value of           line.  Write  on  the  dotted  line  “Hi  Est.  tax  on  IRD tive of source, included in income of the current year 
DNI is known. The DNI can be expressed in terms            $XXX”.                                                       (under  the  governing  instrument  and  Hawaii  law), 
of the AMID. To do this, compute the DNI using the                                                                      and dividing by the total of all the income items in-
known values. In this example, the DNI is equal to         Note: No exemption is allowed on the final return of 
the total income of the trust (less any capital gains      an estate or trust. Also, qualified funeral trusts are       cluded in income of the current year (under the gov-
allocated to corpus; or plus any loss from line 4);        not allowed a deduction for a personal exemption.            erning instrument and Hawaii law). In computing the 
                                                                                                                        total of all items of income under applicable local law, 
less total deductions from line 17 (computed with-                                                                      do not reduce income by any losses (such as losses

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                                                                                                                                                                       Page 9
from the sale or exchange of property). In the case         from property owned outside Hawaii or from other            or trust on the distribution (basis of beneficiary), 
of a nonresident estate or trust, enter on line 2(b) the    sources  outside  Hawaii)  entering  into  distributable    or
result obtained by multiplying line 1 by the total of       net income.                                                 (2) The fair market value of such property. This rule 
all income which is nontaxable because it is derived                                                                    does not apply to any noncash property distrib-
from property owned outside Hawaii or from other            Line 2(b).—In the case of a nonresident estate or 
sources outside of Hawaii but which is included in          trust, enter the amount of income which is nontax-          uted in satisfaction of a specific sum of money. 
income of the current year, under the governing in-         able because it is derived from property owned out-         If a section 643(e)(3) election is made by the fidu-
strument or Hawaii law, and dividing by the total of all    side Hawaii or from other sources outside Hawaii,           ciary, then the amount entered on line 12 will be the 
the income items included in income of the current          adjusted  in  the  same  manner  as  the  tax-exempt        fair market value of the property.
year determined as above stated. The nonresident            income. Include capital gains which are paid, cred-
estate or trust should include, as income which is          ited,  or  required  to  be  distributed  to  beneficiaries Line 13. Total distributions.—Add lines 11 and 12 
nontaxable because of source outside Hawaii, the            but are not taxable to the nonresident estate or trust      and enter the total on line 13. If line 13 is more than 
capital gains from property owned outside Hawaii if         because it is derived from property owned outside           line 10 and you are filing for a complex trust, com-
the capital gains are allocable to income.                  Hawaii.                                                     plete Schedule J (Form N-40) and file it with Form 
                                                                                                                        N-40 unless the complex trust has no previously ac-
Line 4.—Enter the total of all net short-term capi-         Line 5. Long-term capital gains distributed for             cumulated income.
tal gain and net long-term capital gain of the cur-         charitable purposes.—Figure the amount to enter 
rent year that is:                                          on line 5 as follows: Multiply line 1 of Schedule A by      Line 14.—In computing the income distribution de-
                                                            a fraction; the numerator of which is the amount of         duction  for  beneficiaries,  the  estate  or  trust  is  not 
• Allocable to corpus or                                    long-term capital gains that are included in the ac-        allowed a deduction for any item of DNI that is not 
• Paid or permanently set aside for charitable pur-         counting income of the estate or trust (i.e., not al-       included in the gross income of the estate or trust. 
  poses; and                                                located to corpus) AND are distributed to charities;        Thus, for purposes of computing the allowable in-
• Not included on line 1.                                   the denominator of which is all items of income (in-        come distribution deduction, the DNI (line 9) is com-
                                                            cluding the amount of such long-term capital gains)         puted without regard to any tax-exempt interest.
Line 5.—Enter the total of deductible amounts paid          included in DNI.                                            If tax-exempt interest is the only tax-exempt in-
or  permanently  set  aside  for  charitable  purposes                                                                  come included in the total distributions (line 13), and 
from gross income of a prior tax year (and for which        Line 6. Short-term capital gains distributed for 
no charitable deduction was claimed in the prior tax        charitable purposes.—Figure  line  6  in  the  same         the DNI (line 9) is less than or equal to line 13, then 
year). Attach a statement to show the details.              manner as line 5, except the numerator of the frac-         enter on line 14 the amount from line 2(a).
                                                            tion includes only short-term capital gains that are        If tax-exempt interest is the only tax-exempt in-
Schedule B — Page 2                                         included in the accounting income of the estate or          come included in the total distributions (line 13), and 
                                                            trust and distributed to charities.                         the DNI is more than line 13 (i.e., the estate or trust 
Income distribution                                                                                                     made a distribution that is less than the DNI), then 
deduction                                                   Line 10.—If you are filing for an estate, enter -0-. If     compute the adjustment as follows:
                                                            you are filing for a simple or a complex trust, enter 
General Instructions                                        the income for the tax year determined under the            Multiply line 2(a) by a fraction; the numerator of 
The  term  “distributable  net  income”  (DNI)  limits      terms  of  the  governing  instrument  and  applicable      which is the total distributions (line 13), and the 
the  deductions  allowable  to  estates  and  trusts  for   Hawaii law. Do not include extraordinary dividends          denominator of which is the DNI (line 9). Enter 
amounts paid, credited, or required to be distributed       or  taxable  stock  dividends  determined  under  the       the result on line 14.
to beneficiaries and is used to determine how much          governing instrument and applicable Hawaii law to           If line 13 includes tax-exempt income other than 
of an amount paid, credited, or required to be distrib-     be attributable to corpus.                                  tax-exempt interest, figure line 14 as follows:
uted to a beneficiary will be includable in his or her      Lines 11 and 12                                             From tax-exempt income included on line 13, sub-
gross income.                                               Do not include any:                                         tract the total of:
Separate  share  rule.—If  a  single  trust  has  more      • Amounts  deducted  on  an  earlier  year’s  return        (1) the charitable contribution deduction allocable to 
than  one  beneficiary,  and  if  different  beneficia-       that were required to be distributed in the earlier       such tax-exempt income, and
ries  have  substantially  separate  and  independent         year.                                                     (2) expenses  allocable  to  tax-exempt  income.  To 
shares, their shares are treated as separate trusts         • Amount  that  is  properly  paid  or  credited  as  a     compute the expenses allocable to tax-exempt 
for the sole purpose of determining the DNI allocable         gift or bequest of a specific amount of money or          income,  divide  tax-exempt  income  by  total  in-
to the respective beneficiaries. If the separate share        specific property. (To qualify as a gift or bequest,      come. Multiply the result by expenses not directly 
rule applies, figure the DNI allocable to each benefi-        the amount must be paid in three or fewer install-        allocable to any item of income.
ciary on a separate sheet and attach the sheet to this        ments.) An amount that can be paid or credited 
return. For more information, see section 663(c) and          only from income is not considered a gift or be-          MULTISTATE TAX COMPACT ACT.—Any taxpay-
related regulations.                                          quest.                                                    er, other than a corporation, acting as a business 
                                                                                                                        entity in more than one state who is required by the 
Line-by-Line Instructions                                   • Amount paid or permanently set aside for chari-           Hawaii Income Tax Law to file a return and whose 
                                                              table  purposes  or  otherwise  qualifying  for  the      only activities in this State consist of sales and who 
Line 1.—Enter the amount shown on page 1, line                charitable deduction.                                     does not own or rent real estate or tangible personal 
18, computed by using Schedule A, line 6, for page 
1, line 13. If the amount is a loss, enter zero on line 1,  Line 11.—Enter income of the estate or trust that is        property and whose annual gross sales in or into the 
Schedule B, however, if the loss is attributable to the     required to be distributed currently to all beneficia-      State during the tax year is not in excess of $100,000 
capital  loss  limitation  rules  under  section  1211(b),  ries, whether it is distributed or not. The governing       may elect to report and pay a tax of 0.5% of such an-
enter on line 1, Schedule B, the smaller of the net         instrument and Hawaii law determine the items of            nual gross sales. Taxpayers who elect the foregoing 
loss from line 18 of page 1, Form N-40, or the loss         income and whether an amount must be distributed            shall file Form N-310.
from line 6 of page 1, Form N-40.                           currently.  If  the  governing  instrument  requires  that 
                                                            stated  amounts  be  paid  to  a  beneficiary  and  that    Schedule C — Page 3 
Line 2(a).—Enter the amount of tax-exempt interest          these amounts may come from either income or cor-           Explanation of deductions
and other nontaxable income received, less: (i) the         pus, include on line 11 any part of these amounts           Itemize in Schedule C the deductions for interest and 
amount of tax-exempt income shown on Schedule               paid from the current year’s income.                        taxes, and other deductions claimed on page 1, lines 
A line 2(a); and (ii) any amounts which, but for the 
provisions of section 265, would be deductible in re-       Line 12.—Enter other amounts actually paid, cred-           10, 11, 12, 14, 15, and 16. If the space provided on 
spect of disbursements, expenses, losses, etc., of          ited or required to be distributed to beneficiaries in      the form is insufficient, attach a separate schedule.
the trust or estate, directly or indirectly allocable to    the tax year, whether from income or corpus.
                                                                                                                        Schedule E — Page 3 
such income. The amount of the indirect disburse-             Unless  a  section  643(e)(3)  election  is  made, 
ments, etc., allocable to a tax-exempt income is that       the  value  of  all  noncash  property  actually  paid,     Nonrefundable Credits 
amount which bears the same ratio to the total dis-         credited, or required to be distributed to any ben-         (Enter fiduciary’s share only 
bursements, etc., of the trust or estate not directly       eficiaries after June 1, 1984, is the smaller of:           on Schedule CR and attach 
attributable to other items of income as the total tax-
exempt income received bears to the total of all the        (1) The estate’s or trust’s adjusted basis in the prop-     Schedule CR to Form N-40)
items of gross income (including tax-exempt income            erty  immediately  before  distribution,  plus  any 
and,  in  the  case  of  a  nonresident  estate  or  trust,   gain or minus any loss recognized to the estate           See the Instructions for Schedule CR for more infor-
                                                                                                                        mation on the nonrefundable credits.
income  which  is  nontaxable  because  it  is  derived

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Note: The amount of a specific credit actually re- Line 4. Total Nonrefundable Credits from Sched-
ceived may be limited by the amount of tax liability If the ule CR, line 32.—Note: If line 3 is zero or less, no
and the amount of other credits allowed. See spe- taxable income The tax shall be: nonrefundable tax credit may be used. Enter zero
cific credit forms for limitations. (line 22) is: on line 4.
But Not Of the
Credit allowed for taxes paid to a state or for- Over Over amount If the estate or trust is claiming any nonrefundable
eign country by a resident estate or trust.—If a over tax credits, you must use Schedule CR, Schedule
resident estate or trust derived income from sources $ 0 $ 2,000 1.40% $ 0 of Tax Credits, to summarize the total nonrefundable
without Hawaii and paid a net income tax to a state 2,000 4,000 $28.00 plus 3.20% 2,000 tax credits claimed. Complete Part II of Schedule
or foreign country, a credit may be claimed against 4,000 8,000 92.00 plus 5.50% 4,000 CR, and enter the amount from Schedule CR, line
the Hawaii income tax. A credit is allowable against 8,000 12,000 312.00 plus 6.40% 8,000 32 on line 4. Attach Schedule CR to Form N-40.
the Hawaii income tax only if the tax paid to a state 12,000 16,000 568.00 plus 6.80% 12,000 Line 5.—Line 3 minus line 4. If line 5 is less than
or foreign country was based on net income of the 16,000 20,000 840.00 plus 7.20% 16,000 zero, enter a minus sign, “-”, to the left of the number.
same taxable year and only if the income taxed by 20,000 30,000 1,128.00 plus 7.60% 20,000
the state or foreign country was derived from sourc- 30,000 40,000 1,888.00 plus 7.90% 30,000 Line 6(a). Estimated tax payments.—Enter on this
es without Hawaii. Intangible personal property of 40,000 — 2,678.00 plus 8.25% 40,000 line the total estimated taxes paid by the estate or
a resident estate or trust has a situs within Hawaii, trust for 2023. Show the breakdown of the total paid
therefore, income from such property is derived from If the estate or trust had both net capital gain and on Forms N-201V and N-288A (net of N-288C re-
within and not from without Hawaii and no credit may any taxable income, complete Part VI of Schedule D funds) in the appropriate spaces.
be allowed for taxes paid to a state or foreign country (Form N-40), enter the tax from line 45 of Schedule
based on such income. (However, in the rare case of D, and check the “Schedule D (Form N-40)” box. Line 6(b). Tax withheld.—Attach supporting docu-
a separate business situs there may be an excep- ments that show Hawaii income tax withheld.
tion to this rule.) To obtain a credit against the Hawaii Section 641(c) tax on electing small Enter the amount of Hawaii income tax withheld
tax, a copy of the return filed with a state or foreign business trusts (ESBTs) by an S corporation as shown on the Form N-4 is-
country must be furnished as well as a receipt or sued to the fiduciary.
other evidence to substantiate payment of the tax. If Special rules apply when figuring the tax on the por-
any taxes paid are at any time refunded, the Hawaii tion of an ESBT consisting of stock in one or more Attach Form N-4 to the front of the fiduciary’s
State Tax Collector must be notified promptly of such S corporations. This tax must be figured separately Form N-40 where indicated.
refund. The Hawaii Income Tax Law allows no credit from the tax on the remainder of the ESBT and is
to a nonresident estate or trust for the taxes paid to included in the total tax on Schedule G (Form N-40) Line 6(d). Estimated tax payments allocated to
a state or foreign country. Limitations of credit—see line 1. The tax on the remainder of the ESBT is fig- beneficiaries.—A trust or a decedent’s estate may
Department Rules. ured in the normal manner on Form N-40. elect to have any part of its estimated tax payments
treated as made by a beneficiary or beneficiaries.
The tax on the S corporation items is figured as
Pass-Through Entity Tax Credit.—Act 50, SLH if that portion of the ESBT were a separate trust with Use Form N-40T to make the election to allocate
2023, allows partnerships and S corporations to an- the following modifications: estimated tax payments to beneficiaries. This elec-
nually elect to pay Hawaii income taxes at the en- tion must be filed by March 5, 2024.
tity level. Eligible members of an electing PTE may • Take into account only the income, losses, de-
claim a nonrefundable income tax credit for their pro ductions, and credits allocated to the ESBT as an Line 6(f). Amount applied from 2022 return.—
rata share of PTE taxes paid by the entity, if eligible S corporation shareholder and gain or loss from Enter on this line any overpayment from the 2022
members claiming the credit are trusts, they may dis- the disposition of S corporation stock. return that was applied to the 2023 estimated tax.
tribute the credit to their beneficiaries in accordance • You may not claim a deduction for capital losses Line 8. Penalty for underpayment of estimated
with applicable law. Effective for taxable years begin- in excess of capital gains. tax.—See “Penalties and Interest” in the General
ning after December 31, 2022. • You may not claim an income distribution deduc- Instructions and Form N-210.
For more information, see Form N-362, Pass- tion or an exemption amount.
Line 9. TAX DUE.—If the total of lines 5 and 8 is
Through Entity Tax Credit and Tax Information Re- • Except in figuring the maximum tax on capital larger than line 7, the difference is your balance due.
lease No. 2023-03, “Proposed Temporary Adminis- gains, the tax on the separate trust’s taxable in-
trative Rules Relating to Pass-Through Entity Taxa- come is at the highest rate imposed on estates Line 10. PAYMENT AMOUNT. —Enter the amount
tion as Enacted by Act 50, Session Laws of Hawaii and trusts. of payment. Attach your check or money order to the
2023. front of Form N-40. Make check or money order pay-
When figuring the tax and DNI on the remain-
Schedule F — Page 3 ing portion of the trust, disregard the S corporation able to “Hawaii State Tax Collector.”
items. If the estate or trust cannot pay the full amount
Refundable Credits that is owed, you can ask to enter a payment agree-
(Enter fiduciary’s share only Do not apportion to the beneficiaries any of the S
corporation items. ment after you receive a billing notice for the bal-
on Schedule CR and attach ance due. Please be aware that penalty and interest
ScheduleInclude the section 641(c) tax on Schedule G continue to accrue on the unpaid tax amount even CR to Form N-40)
(Form N-40) line 1. Attach the section 641(c) tax though you have not yet received a billing notice.
See the Instructions for Schedule CR for more infor- computation to the return. Payments will be accepted and applied to the entity’s
mation on the refundable credits. tax liability; however, to ensure that the entity’s pay-
Line 2. Total Refundable Credits from Sched- ments are applied correctly, your check or money
Schedule G — Page 3 ule CR, line 10.—If the estate or trust is claiming order must have: (1) the entity’s name as shown on
any refundable tax credits, you must use Schedule the return clearly printed on the check, (2) the entity’s
Tax Computation CR, Schedule of Tax Credits, to summarize the total federal employer identification number (FEIN), and
If the estate or trust had no taxable net capital gains, refundable tax credits claimed. Complete Part I of (3) the tax year and form number being filed (e.g.,
the amount of the tax shall be determined using the Schedule CR, and enter the amount from Schedule 2023 N-40).
following rate schedule: CR, line 10, on line 2. Attach Schedule CR to Form
N-40. Line 11. OVERPAYMENT.—If line 7 is larger than
the total of lines 5 and 8, subtract line 7 from the total
Line 3. ADJUSTED TAX LIABILITY.—Line 1 minus of lines 5 and 8 and show the difference on line 11.
line 2. If line 3 is less than zero, enter a minus sign, This is the amount overpaid.
“-”, to the left of the number.
If line 3 is zero or less, the nonrefundable credits However, if line 5 is less than zero, complete the fol-
may not be used. Even if you are not able to use the lowing worksheet:
nonrefundable credits, complete the forms for any 1. Amount from line 5 (enter as
credits you qualify for, and attach the forms to your a positive number). ................
Form N-40. If the forms are not attached, no claim 2. Amount from line 7. ................
for the credit has been made, and you will lose the
carryover of your unused credits. 3. Add line 1 and line 2. .............
Enter the amount from line 3 of the worksheet on line
11. This is the amount overpaid.

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Amended Returns filed by the due date (including extensions) for the b. A payment and there is an amount on line 11,
farming NOL year. This statement must state that add these amounts and enter the total on line
Complete the entity’s amended return through line you are electing to waive the carryback period un- 15 and enter a minus sign, “-”, to the left of the
11, using corrected amounts, then go to line 14. If the der section 235-7(d), HRS, and IRC section 172(b) amount.
return is being amended to take a farming NOL car- (1)(B)(iv) c. An overpayment and there is an amount on
ryback deduction, also check the NOL box. Attach a line 9, subtract the amount on line 14 from the
completed Schedule AMD, Explanation of Changes Line 14. Amount paid (overpaid) on original re-
on Amended Return, to the amended return. Also, turn. —Enter on line 14 the amount paid on the en- amount on line 9, and enter the result on line 15.
attach all schedules, forms, and attachments re- tity’s original 2023 return (from line 10 of the original This is the amount the entity owes on its amend-
quired to file a complete return. return) or the amount overpaid (from line 11 of the ed return.
original return). If there is an overpayment, en- d. An overpayment and there is an amount on line
Note: For NOLs arising in taxable years ending after ter a minus sign, “-”, to the left of the overpayment 11, consider the amount on line 11 a negative
December 31, 2017, Act 27, SLH 2018, eliminates amount. amount and subtract the amount on line 14 from
NOL carrybacks (except for farming NOLs which the amount on line 11, and enter the difference
are permitted a two-year carryback), and allows un- Line 15. BALANCE DUE (REFUND) with amend- on line 15. If the difference is a negative amount,
used NOLs to be carried forward indefinitely. Also, ed return.—If no amount was entered on line 14, show the negative amount on line 15 with a mi-
the NOL deduction is limited to 80% of taxable in- enter on line 15 the amount, if any, from line 9 or line nus sign, “-”. If there is an overpayment on the
come for taxable years beginning after December 11 of the amended return. If there is an amount on amended return, do NOT enter this amount on
31, 2017. (See the Note under “Amended Return” line 14, and that amount is: line 13.
on page 2.) a. A payment and there is an amount on line 9 of
You may elect to carry the farming NOL forward the amended return, subtract the amount on line If the entity has an amount due on its amended re-
instead of first carrying it back to prior years. If you 14 from the amount on line 9 and enter the dif- turn, make check or money order payable to “Hawaii
make this election, then you can use your farming ference on line 15. If the difference is a negative State Tax Collector” and attach the check or money
NOL only in the carryforward period. To make this amount, show the negative amount on line 15 order to the front of Form N-40.
election, attach a statement to your original return with a minus sign, “-”.

INSTRUCTIONS FOR SCHEDULE D (FORM N-40) — GAINS AND LOSSES FROM
THE SALE OR EXCHANGE OF CAPITAL ASSETS
General Instructions way, if the estate or trust’s basis is determined by Exchange of “like-kind” property.—In most cas-
reference to the previous owner’s basis. es, no gain or loss is recognized when property held
Use Schedule D (Form N-40) to report gains and • Certain commodities derivative financial instru- for productive use in a trade or business or for in-
losses from the sale or exchange of capital assets ments held by a dealer not in connection with its vestment is exchanged solely for property of a “like-
by an estate or trust. dealer activities. kind” to be held either for productive use in a trade
or business or for investment. See section 1031.
To report sales or exchanges of property other • Certain identified hedging transactions entered However, if a trust exchanges “like-kind” property
than capital assets, including the sale or exchange of into in the normal course of a trade or business. with a “related person” (see discussion below), and
property used in a trade or business and involuntary
conversions (other than casualties and thefts), see • Supplies regularly used in the trade or business. before two years after the date of the last transfer
Schedule D-1 and related instructions. You may find additional helpful information in which was part of the exchange the related person
If property is involuntarily converted because of a the following publications that are available from the disposes of the property, or the trust disposes of the
casualty or theft, use federal Form 4684, Casualties IRS: property received in exchange from the related per-
son, then the original exchange will not qualify for
and Thefts. Publication 544, Sales and Other Dispositions of nonrecognition. See section 1031(f) for exceptions.
Section 1256 contracts and straddles are report- Assets.
Report these transactions on Schedule D or
ed on federal Form 6781, Gains and Losses From Publication 551, Basis of Assets. Schedule D-1 whichever is applicable. If you use
Section 1256 Contracts and Straddles. Schedule D, identify in column (a) the property dis-
Short Term or Long Term.—Separate the capital
Note: All income earned and proceeds derived gains and losses according to how long the estate or posed of. Enter the date of acquisition in column (b)
from stock options or stock, including stock issued trust held or owned the property. The holding period and the date of exchange in column (c). Write “like-
through the exercise of stock options or warrants, for short-term capital gains and losses is one year or kind exchange” in column (d) and enter the adjusted
from a qualified high technology business or from a less. The holding period for long-term capital gains basis in column (e). Enter zero in column (f). Also
holding company of a qualified high technology busi- and losses is more than one year. Property acquired complete and attach federal Form 8824. See the
ness by an employee, officer or director of the quali- by a decedent’s estate from the decedent and sold Schedule D-1 instructions for more information.
fied high technology business, or investor who quali- or otherwise disposed of within one year is consid- Related persons.—Do not deduct a loss from the
fied for the high technology business investment tax ered as held for more than one year. sale or exchange of property directly or indirectly
credit is excluded from income. When you figure the length of the period the es- between any of the following:
Capital asset.—Each item of property held by the tate or trust held property, begin counting on the day • A grantor and a fiduciary of a trust;
estate or trust (whether or not connected with its after the estate or trust acquired the property and in-
trade or business) is a capital asset except: clude the day the estate or trust disposed of it. Use • A fiduciary and a fiduciary or beneficiary of an-
the trade dates for the date of acquisition and sale other trust created by the same grantor;
• Stock in trade or other property included in inven- of stocks and bonds on an exchange or over-the- • A fiduciary and a beneficiary of the same trust;
tory or held mainly for sale to customers. counter market. • A trust fiduciary and a corporation of which more
• Accounts or notes receivable acquired in the than 50% in value of the outstanding stock is
ordinary course of the trade or business for ser- Section 643(e)(3) election.—For noncash property
vices rendered or from the sale of stock in trade distributions, a fiduciary may elect to have the estate owned directly or indirectly by or for the trust or
or other property included in inventory or held or trust recognize gain or loss in the same manner by or for the grantor of the trust; or
mainly for sale to customers. as if the distributed property had been sold to the • An executor of an estate and a beneficiary of that
beneficiary at its fair market value (FMV). The distri- estate, except when the sale or exchange is to
• Depreciable or real property used in the trade or bution deduction is the property’s FMV. This election satisfy a pecuniary bequest (i.e., a bequest of a
business, even if it is fully depreciated. applies to all distributions made by the estate or trust sum of money).
• Certain copyrights; literary, musical, or artistic during the tax year, and once made may be revoked
compositions; letters or memorandums; or simi- only with the consent of the IRS. Items for special treatment.—The following
items may require special treatment:
lar property. Note that section 267 does not allow a deduc-
• Certain U.S. Government publications, includ- tion for any loss from the sale of property on which a • Wash sales of stock or securities (section 1091).
ing the Congressional Record, received from the trust makes a section 643(e)(3) election. In addition, • Gain or loss on options to buy or sell (section
Government, other than by purchase at the nor- when a trust distributes depreciable property, section 1234).
mal sales price, or that the estate or trust got from 1239 applies to deny capital gains treatment on the • Certain real estate subdivided for sale that may
another taxpayer who had received it in a similar gain to the trust if the trust makes a section 643(e) be considered a capital asset (section 1237).
(3) election.

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• Gain on disposition of stock in an interest charge taxpayer’s 2001 federal tax return will be different paid, credited, or required to be distributed to any
domestic international sales corporation (section for federal and State tax purposes. beneficiary during the tax year. See Regulations
995(c)). section 1.643(a)-3 for more information about allo-
Lines 2 and 8. Installment sales.—If the estate or cation of capital gains and losses.
• Gain on the sale or exchange of stock in certain trust sold property at a gain this year and will receive
foreign corporations (section 1248). a payment in a later tax year, use the installment Except in the final year, if the losses from the
• Sale of stock received under a qualified public method and file federal Form 6252, Installment Sale sale or exchange of capital assets are more than the
utility dividend reinvestment plan. See Publica- Income, unless you elect not to do so. gains, all of the losses are allocated to the fiduciary
and none are allocated to the beneficiaries.
tion 550 for details. Also use federal Form 6252 to report any pay-
• Transfer of appreciated property to a political or- ment received in 2018 from a sale made in an earlier Line 15, column (b). Fiduciary’s net short-term
ganization (section 84). year that was reported on the installment method. capital gain or loss.—Enter the amount of the net
• Disposition of market discount bonds (section If the estate or trust elects not to use the install- short-term capital gain or loss allocable to the fidu-
1276). ment method, report the full amount of the gain on a ciary. Include any capital gain paid or permanently
• Gains from certain constructive ownership trans- timely filed return (including extensions). set aside for the charitable purpose specified in sec-
tion 642(c).
actions. Gain in excess of the gain the estate or If the estate or trust files federal Form 6252, enter
trust would have recognized if the estate or trust on Schedule D (Form N-40), line 2, the short-term Line 15, column (c). Total.—Enter the total of the
had held a financial asset directly during the term capital gain from installment sales from federal Form amounts entered in columns (a) and (b). The amount
of a derivative contract must be treated as ordi- 6252. Enter on Schedule D (Form N-40), line 8, the in column (c) should be the same as the amount on
nary income. See section 1260 for details. long-term capital gain from installment sales from line 6.
federal Form 6252.
Line-by-Line Instructions Line 16. Net long-term capital gain or loss.—
Lines 4 and 12. Short-term and long-term capital Treat the net long-term capital gain or loss on line
Lines 1 and 7. Short-term and long-term capi- gains from qualified high technology business 16 in the same manner as the net short-term capital
tal gains and losses.—Enter all sales of stocks, stock options.—All income earned and proceeds gain or loss on line 15.
bonds, etc. derived from stock options or stock, including stock
If you are reporting capital gain from a lump-sum issued through the exercise of stock options or war- Part IV. Computation of capital loss limitation.—
distribution, see the instructions for Form N-152 for rants, from a qualified high technology business or If the sum of all the capital losses is more than the
information on death benefit exclusion and the Fed- from a holding company of a qualified high technol- sum of all the capital gains, then these capital losses
eral estate tax. ogy business by an employee, officer or director of are allowed as a deduction only to the extent of the
the qualified high technology business, or investor smaller of the net loss or $3,000.
Column (d). Gross sales price.—Enter either the who qualified for the high technology business in- Part V. Computation of capital loss carryovers
gross sales price or the net sales price from the vestment tax credit is excluded from income. Losses from 2023 to 2024.—Complete Part V to figure the
sale. On sales of stocks and bonds, report the gross on sales or dispositions of stock obtained through capital loss carryover. A capital loss carryover may
amount as reported to the fiduciary by the fiduciary’s options or warrants from a qualified high technology be carried forward indefinitely. Capital losses keep
broker on federal Form 1099-B or similar statement. business may be deducted. These losses are not their character as either short-term or long-term
However, if the broker advised the fiduciary that added back to income. when carried over to the following year. To the extent
gross proceeds (gross sales price) less commis-
sions and option premiums were reported to the IRS, Use lines 4 and 12 to reduce the estate’s or trust’s the capital loss subject to the limitation is deducted
enter that net amount in column (d). capital gain for these amounts reported on other from ordinary income, consider the net short-term
lines of Schedule D. capital loss as deducted first. If this is the final year
Column (e). Cost or other basis, as adjusted, of the estate or trust, also enter on line 8b, Sched-
plus expense of sale.—Enter the cost or adjusted Line 10. Capital gain distributions.—Enter any ule K-1, if short-term, or on line 8c, Schedule K-1,
basis of the property sold or exchanged, plus any ex- amounts shown on federal Form 2439, Notice to if long-term.
pense of sale, such as broker’s fees, commissions, Shareholder of Undistributed Long-Term Capital
etc. The basis of property acquired from or passing Gains, that represent the estate’s or trust’s share of Part VI. Tax Computation Using Maximum Capi-
from a decedent is generally the FMV at the date the undistributed capital gains of a regulated invest- tal Gains Rate.—
of death. For more information, see Publication 551. ment company. Line 44.—To compute the regular tax, see the in-
Caution: The special federal election for capital Line 15, column (a). Beneficiaries’ net short- structions for Form N-40, Schedule G line 1.
assets acquired in tax years beginning before term capital gain or loss.—Enter the amount of Line 45.—If the tax, using the Maximum Capital
January 1, 2001 (election under section 311 of net short-term capital gain or loss allocable to the Gains Rate (line 43), is less than the regular tax (line
the Taxpayer Relief Act of 1997) was not avail- beneficiary or beneficiaries. Except in the final year, 44), then enter the amount from line 45 on Form
able for Hawaii tax purposes. As a result, the ba- include only those short-term capital losses that are N-40, Schedule G line 1, and check the “Schedule
sis of assets for which an election was made on a taken into account in determining the amount of gain D (Form N-40)” box.
from the sale or exchange of capital assets that is

INSTRUCTIONS FOR SCHEDULE J (FORM N-40) — TRUST ALLOCATION OF AN
ACCOUNTING DISTRIBUTION
Line-by-Line Instructions
Line 7. Distributions — For years prior to 1987, Line 20. Net long term gain — For years prior to 2. For years 1988 through 2007, enter the smaller of
enter the total of columns 3 and 4, Schedule C, 2008, enter the following amounts from Schedule D, line 16 or 17, column (b). For years 1988 through
Form N-40. For years 1987 through 1989, enter the (Form N-40). For years prior to 1979, enter 50% of 2007, enter the smaller of line 16 or 17, column (b).
amount from line 1, Schedule G, Form N-40. line 16(e) or line 23(e), whichever is applicable. For For years 2008 through 2017, enter the smaller of
years 1979 through 1986, enter 40% of line 16(e). line 18 or 19, column (b). For years 2018 through
Line 18. Tax — For years prior to 1983, enter the For the period from 1/1/1987 to 3/31/1987, enter 2022 enter the smaller of line 16 or 17, column (b).
amount from line 22, page 1, Form N-40. For years 45% of line 20(e). For the period from 4/1/1987 to
1983 through 2008, enter the amount from line 23, 12/31/1987, enter the smaller of line 22 or 23, column Line 22. Taxable income — For years prior to 1983,
page 1, Form N-40. enter taxable income from line 21, Form N-40.

INSTRUCTIONS FOR SCHEDULE K-1 (FORM N-40) — BENEFICIARY’S SHARE OF
INCOME, DEDUCTIONS, CREDITS, ETC.
Important Notes ditions Worksheet and the Hawaii Subtractions General Instructions
Worksheet in the Form N-11 Instructions.
• For Form N-11 filers, if your federal Schedule K-1 Purpose of form.—The fiduciary uses Schedule
(Form 1041) and Hawaii Schedule K-1 (Form • All referenced worksheets are contained in the
N-40) amounts are different, the necessary ad- Form N-11 Instructions and in the Form N-15 In- K-1 (Form N-40) to report the beneficiary’s share of
justments are to be computed on the Hawaii Ad- structions. income, deductions, and credits from a trust or de-
cedent’s estate.

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Who must file.—The fiduciary (or one of the joint year that were credited or required to be distributed Lines 5a through 5d.—Caution: The limitations on
fiduciaries) must file Schedule K-1. A copy of each in that earlier year. passive activity losses and credits under section 469
beneficiary’s Schedule K-1 is attached to the Form apply to estates and trusts. Estates and trusts that
N-40 filed with the Department and each beneficiary Beneficiary’s tax year.—The beneficiary’s income distribute income to beneficiaries are allowed to al-
is given a copy of his or her respective Schedule K-1. from the estate or trust must be included in the ben- locate depreciation, depletion, and amortization de-
One copy of each Schedule K-1 must be retained for eficiary’s tax year during which the tax year of the ductions to the beneficiaries. These deductions are
the fiduciary’s records. estate or trust ends. See Publication 559 for more referred to as “directly allocable deductions.”
information including the effect of the death of a ben-
Beneficiary’s identifying number.—As a payor eficiary during the tax year of the estate or trust. Any directly allocable deduction, such as depre-
of income, you are required to request and provide ciation, is treated by the beneficiary as having been
a proper identifying number for each recipient of Line-by-Line Instructions incurred in the same activity as incurred by the trust
or estate. However, the character of such deduction
income. Individuals and business recipients are re- Line 1. Interest.—Enter the beneficiary’s share of may be determined as if the beneficiary incurred the
sponsible for giving you their taxpayer identification the taxable interest income. deduction directly.
numbers upon request.
Line 2. Ordinary Dividends.—Enter the beneficia- To assist the beneficiary in computing any appli-
Beneficiary’s income.—If no special computa- ry’s share of dividend income. cable passive activity loss limitations, also attach a
tions are required, use the following instructions to separate schedule showing the beneficiary’s share
compute the beneficiary’s income from the estate or Line 3a. Net short-term capital gain.—Enter the of income derived from: (a) rental; (b) rental real es-
trust. In other cases, see Publication 559 and sec- beneficiary’s share of the net short-term capital gain tate; and (c) business activities.
tions 652, 662, and 663, and related regulations. from Schedule D (Form N-40), line 15, column (a).
For example, special computations are required for Do not enter a loss for any year before the final year If there is more than one activity, one or more of
capital gains and losses or a charitable deduction. In of the estate or trust. If for the final year there is a which is a passive activity, income and deductions
addition, the terms of the governing instrument may capital loss carryover, enter on line 8b, the benefi- are to be shown separately for each activity on an
require different computations. ciary’s share of short-term capital loss carryover as attached schedule.
a loss in parentheses. However, if the beneficiary Line 6. Other net income taxes.—List on a sepa-
Income.—The beneficiary must include in gross in- is a corporation, enter the beneficiary’s share of all rate sheet the beneficiary’s share of the applicable
come the smaller of: (1) the amounts paid, credited, carryover capital losses in parentheses. See federal net income taxes paid or accrued to another state
or required to be distributed; or (2) the proportionate Publication 559 and section 642(h) and related regu- or foreign country. Identify and include the various
share of distributable net income, reduced in either lations for more information. sources for the beneficiary’s credit.
case by the share of distributable tax-exempt in-
come minus the allocable expense not allowable as Line 3b. Net long-term capital gain.—Enter the Line 7a. Capital Goods Excise Tax Credit.—Enter
a deduction on Form N-40. beneficiary’s share of the net long-term capital gain the beneficiary’s share of the cost of property quali-
from Schedule D (Form N-40), line 16, column (a). fying for the capital goods excise tax credit. Benefi-
Character of income.—The beneficiary’s income Do not enter a loss for any year before the final year ciaries are to figure their credit on Form N-312.
is considered to have the same proportion of each of the estate or trust. If for the final year there is a
class of items entering into the computation of DNI capital loss carryover, enter on line 8c, the beneficia- Line 7b. Low-Income Housing Tax Credit.—Enter
that the total of each class has to the DNI (for ex- ry’s share of the long-term capital loss carryover as the beneficiary’s share of the low-income housing
ample, half dividends and half interest if the entity’s a loss in parentheses. (If the beneficiary is a corpora- tax credit. Beneficiaries are to report their share of
income is half dividends and half interest). tion, see the instructions for line 3a.) See Publication the credit on Form N-586.
Allocation of deductions.—Generally, items of de- 559, section 642(h) and related regulations for more
duction that enter into the computation of DNI are to information. Line 7c. Tax Credit for Research Activities.—
Enter the beneficiary’s share of the tax credit for
be allocated among the items of income to the extent Gains, or losses, from the complete, or partial, research activities. Beneficiaries are to report their
such allocation is not inconsistent with the rules set disposition of a rental, rental real estate, or trade or share of the credit on Form N-346.
out in section 469 and the regulations thereunder, business activity that is a passive activity, must be
relating to passive activity loss limitations, in the fol- shown as an attachment to Schedule K-1. Line 8a. Excess deductions on termination.—
lowing order. If this is the final return and there are excess de-
Line 4a. Business income and other non-passive ductions on termination or an NOL carryover (see
First, all deductions directly attributable to one income.—Enter the beneficiary’s share of annuities, instruction for “Line 18. Adjusted total income or
class of income are deducted from that income. For royalties, or any other income, before any directly (loss).”), enter the beneficiary’s share of the excess
example, rental expenses, to the extent allowable, apportionable deductions, that is NOT subject to any deductions on line 8a.
are deducted from rental income. passive activity loss limitation rules at the beneficiary
Second, deductions which are not directly attrib- level. Use line 5a to report income items that could (a) Excess Deductions. Excess deductions on
utable to one class of income, such as fiduciary fees, be subject to the passive activity rules at the benefi- termination occur only during the last taxable year of
may be allocated to any class of income, as long as ciary’s level. the estate or trust when the total deductions (other
a reasonable portion is allocated to any tax-exempt than the deductions allowed under section 642(b)
income. Lines 4b and 5b. Depreciation (including cost (relating to the exemption amount) or section 642(c)
recovery).—Enter the beneficiary’s share of the (relating to the charitable contributions)) are greater
Finally, any excess deductions which are directly depreciation deductions attributable to each activity than the gross income during that tax year. Figure
attributable to a class of income may be allocated reported on lines 4a and 5a. See the instructions for the deductions on a separate sheet and attach it to
to another class of income. In no case can excess line 4 on page 5 for a discussion of how the depre- the form.
deductions from a passive activity be allocated to ciation deduction is apportioned between the benefi- Only the beneficiary of an estate or trust that
income from a non-passive activity, or to portfolio ciaries and the estate or trust. succeeds to its property is allowed to deduct that
income earned by the estate or trust. Excess deduc-
tions attributable to tax-exempt income cannot offset Note: An estate or trust cannot make an election entity’s excess deductions on termination. A benefi-
any other class of income. under section 179 to expense certain depreciable ciary who does not have enough income in that year
In no case can deductions be allocated to an business assets. to absorb the entire deduction may not carry the
balance over to any succeeding year. An individual
item of income that is not included in the computa- Lines 4c and 5c. Depletion.—Enter the beneficia- beneficiary must be able to itemize deductions in or-
tion of DNI, or attributable to corpus. ry’s share of the depletion deduction under section der to claim the excess deductions in determining
Except for the final year and for depreciation or 611 attributable to each activity reported on lines 4a taxable income.
depletion allocations in excess of income, you may and 5a. See the instructions for line 4 on page 5 for
not show any negative amounts for any class of a discussion of how the depletion deduction is ap- Lines 8b and 8c. Unused capital loss carry-
income because the beneficiary generally may not portioned between the beneficiaries and the estate over.—Upon termination of the trust or decedent’s
claim losses or deductions from the estate or trust. or trust. estate, the beneficiary succeeding to the property
is allowed as a deduction any unused capital loss
Allocation of credits.—In general, the estate or Lines 4d and 5d. Amortization.—Itemize the ben- carryover under section 1212. If the estate or trust
trust or the beneficiaries may claim applicable tax eficiary’s share of the amortization deductions attrib- incurs capital losses in the final year, use Part V of
credits according to how the income is divided. utable to each activity reported on lines 4a and 5a. Schedule D (Form N-40) to compute the amount of
Divide the amortization deductions between the fidu- capital loss carryover to be allocated to the benefi-
Past years.—Do not include in the beneficiary’s in- ciary and the beneficiaries in the same way that the ciary.
come amounts deducted on Form N-40 for an earlier depreciation and depletion deductions are divided.

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Line 8d. Net operating loss (NOL) carryover.—               by a nonresident estate or trust if the sale is tax-        • Fuel Tax Credit for Commercial Fishers;
Generally, a deduction based upon an NOL carry-             able at the beneficiary level. The fiduciary must           • Motion Picture, Digital Media, and Film Produc-
over is not available to a beneficiary as an excess         timely file (by the 65th day after the close of the           tion Income Tax Credit;
deduction. However, if the last tax year of the estate      tax  year)  Form  N-40T, Allocation  of  Estimated 
or trust is also the last year in which an NOL car-         Tax Payments to Beneficiaries, in order for these           • Credit for tax deemed paid on undistributed capi-
ryover may be taken (see section 172(b)), then the          payments to be transferred to the beneficiaries. If           tal gains of regulated investment companies;
NOL carryover is considered an excess deduction             Form N-40T is not timely filed, the estimated tax           • Important Agricultural Land Qualified Agricultural 
on the termination of the entity to the extent it is not    payments cannot be used by the beneficiaries.                 Cost Tax Credit;
absorbed by the estate or trust during its final tax        (A copy of Schedule K-1 (Form N-40) must be                 • Renewable Fuels Production Tax Credit;
year.  For  more  information,  see  Publication  559,      attached to the beneficiary’s return to substanti-
section 642(h), and the related regulations.                ate claim.);                                                • Historic Preservation Income Tax Credit;
  Upon termination of an estate or trust, a benefi-       • Tax-exempt interest realized by the trust (includ-          • The information a beneficiary will need to com-
ciary succeeding to its property is allowed to deduct       ing  exempt-interest  dividends  received  as  a              pute any recapture taxes; and
any  amount  of  unused  NOL  carryover.  Enter  the        shareholder in a mutual fund or other regulated             • Taxes withheld by an S corporation on behalf of 
unused  carryover  amount  and  write  “NOL  CAR-           investment company);                                          the fiduciary allocated to the beneficiaries.
RYOVER” (see line 8a instructions) to the left of the     • Nontaxable dividends;                                       Note: Upon termination of an estate or trust, any 
figure.                                                                                                                 suspended passive activity losses (PALs) relating to 
                                                          • Investment income (section 163(d));
                                                                                                                        an interest in a passive activity cannot be distributed 
Line 9. Other.—Itemize on line 9, or on a sepa-           • Enterprise Zone Tax Credit;                                 to the beneficiary. Instead, the basis in such activity 
rate  sheet,  the  beneficiary’s  tax  information  for 
which there is no other line on Schedule K-1. This        • Credit for Employment of Vocational Rehabilita-             is increased by the amount of any PALs allocable to 
includes the allocable share, if any, of:                   tion Referrals;                                             the interest, and no losses are allowed as a deduc-
• Payment of estimated tax to be credited to the          • Credit for School Repair and Maintenance;                   tion on the estate’s or trust’s Form N-40.
  beneficiary, including any Hawaii income taxes          • Renewable  Energy  Technologies  Income  Tax 
  withheld upon the sale of Hawaii real property            Credit. Attach Form N-342A to the Schedule K-1;

        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 Ha-
  No  deduction  may  be  had  for  interest  paid  or    wise, other deductions connected with income from             waii.
accrued  or  indebtedness  incurred  or  continued  to    sources outside Hawaii shall not be allowed. Though 

              SPECIFIC INSTRUCTIONS FOR QUALIFIED FUNERAL TRUSTS
  Hawaii’s Income Tax Law allows a pre-need fu-           Making the Election                                           deductions subject to the 2% floor, you must figure 
neral trust to elect not to be treated as a grantor trust                                                               the AGI separately for each QFT using each QFT’s 
but to be taxed as a qualified funeral trust (QFT) and      For Hawaii purposes, the trustee makes the elec-            share of income and deduction amounts.
to have the tax on the earnings of the trust paid by      tion to treat a trust as a QFT when the trustee, for 
the trustee. The income tax rates for estates and         federal purposes, files federal Form 1041-QFT.                  Also, a schedule must be attached to the com-
                                                                                                                        posite Form N-40 that includes the following infor-
trusts are applicable to QFTs. For Hawaii purposes,         The election may be made for any tax year end-              mation for each QFT (or separate interest treated as 
a QFT is to file Form N-40 to report the income, de-      ing after August 5, 1997. QFT status may be elected           a separate QFT):
ductions, gains, losses, etc., and income tax liability   for  trust’s  first  eligible  year  or  for  any  subsequent 
of the QFT. These provisions are effective for tax        year.                                                         • The name of the owner or the beneficiary. If you 
                                                                                                                          list  the  name  of  the  owner  and  that  trust  has 
years ending after August 5, 1997.                          Once made, the election for federal purpose may               more than one beneficiary, you must separate 
  In  general,  the  trustee  of  a  pre-need  funeral    not be revoked without the consent of the IRS. If the           the trust into shares held by the separate ben-
trust which has elected to be taxed as a QFT files        election is revoked for federal purposes, the election          eficiaries;
Form N-40 to report the income, deductions, gains,        is also revoked for Hawaii purposes.
losses, etc., and income tax liability of the QFT. The                                                                  • The type and gross amount of each type of in-
trustee can use the form to file for a single QFT or for  Composite Return                                                come earned by the QFT for the tax year. For 
multiple QFTs having the same trustee, following the        A trustee may file a single, composite Form N-40              capital gains, identify separately the amount of 
rules discussed under Composite Return below.             for all QFTs of which he or she is the trustee. Gen-            net short-term capital gain, net long-term capital 
  For contracts entered into for tax years begin-         erally, a QFT included on a composite return must               gain, and unrecaptured section 1250 gain;
ning after August 29, 2008, there is no limit on the      have a calendar year as its tax year.                         • The  type  and  amount  of  each  deduction  and 
amount of contributions that may be made to a QFT.          Check  the  box  “Composite  Qualified  Funeral               credit allocable to the QFT
For contracts entered into 2008 for tax years begin-      Trust” at the top of Form N-40.                               • The tax and payments made for each QFT; and 
ning before August 30, 2008, contributions to a QFT         On the applicable lines of the Form N-40, enter             • If the QFT was terminated during the year, give 
may not exceed $9,000.                                    the  totals  for  all  the  QFTs  included  on  the  return.    the date of the termination.
                                                          With regard to the adjusted gross income (AGI) to 
                                                          be  used  for  the  allowable  miscellaneous  itemized

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                                                                                                   Page 15
             STATE OF HAWAII — DEPARTMENT OF TAXATION
             RELATED FEDERAL/HAWAII FIDUCIARY TAX FORMS
                                                                                       Copy of
                                                                                       Fed. Form
Federal                                                                Use             May Be
Form Number   Title or Description of Federal Form                     Hawaii Form     Used        

970          Application To Use LIFO Inventory Method                  None            Yes*

1041         U.S. Income Tax Return for Estates and Trusts             N-40            No

1041-QFT     U.S. Income Tax Return for Qualified Funeral Trusts       N-40            No

Schedule D   Capital Gains and Losses                                  Sch. D (N-40)   No

Schedule J   Accumulation Distribution for Certain Complex Trusts      Sch. J (N-40)   No

Schedule K-1 Beneficiary’s Share of Income, Deductions,                Sch. K-1 (N-40) No 
              Credits, Etc.

1128         Application to Adopt, Change, or Retain a Tax Year        None            Yes*

3115         Application for Change in Accounting Method               None            Yes*

4562         Depreciation and Amortization                             None            Yes*

4684         Casualties and Thefts                                     None            Yes*

4797         Sales of Business Property                                Sch. D-1        No

4970         Tax on Accumulation Distribution of Trusts                N-405           No

5884         Work Opportunity Credit                                   N-884           No

6198         At-Risk Limitations                                       None            Yes*

6252         Installment Sale                                          None            Yes*

6781         Gains and Losses from Section 1256                        None            Yes* 
              Contracts and Straddles

7004         Application for Automatic Extension of Time 
              to File Certain Business Income Tax, Information,  
              and Other Returns                                        N-201V          No

8582         Passive Activity Loss Limitations                         None            Yes*

8586         Low-Income Housing Credit                                 N-586           No

8824         Like-Kind Exchanges                                       None            Yes*

8855         Election to Treat a Qualified Revocable Trust             None            Yes* 
              as Part of an Estate

8949         Sales and Other Dispositions of Capital Assets            None            Yes*
* If there is no Hawaii equivalent form, the federal form must be used.

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