What is the §663(b) 65-day rule deadline for tax year 2026?

March 6, 2027 — the 65th day after December 31, 2026. Any complex trust or estate distribution paid by that date can be treated as a 2026 distribution under IRC §663(b), shifting the income to the beneficiary's K-1.

Why does the 65-day rule save tax?

Non-grantor trusts hit the top 37% federal bracket at $15,200 of taxable income (Rev. Proc. 2025-32), versus $626,350 for a single individual. Pushing income to a lower-bracket beneficiary often saves $5,000-$20,000 in federal tax per year.

Where do I make the election on Form 1041?

Check the box on Form 1041, Schedule B, Line 6, and enter the amount treated as paid in the prior year. The election is annual and irrevocable for that year, and must be made by the trust's filing deadline including extensions.

Does the 65-day rule apply to simple trusts?

No — simple trusts must distribute all income annually, so DNI passes through automatically. The §663(b) election is only useful for complex (discretionary) trusts and decedents' estates that retain undistributed income.

Can I distribute more than DNI?

You can distribute more cash, but only an amount up to DNI carries an income deduction to the trust under §661. Anything above DNI is a tax-free principal distribution to the beneficiary.

65 Day Rule Trust 2026 Form 1041 Distribution Calculator

Estimate how much federal tax a non-grantor trust can save by making a §663(b) 65-day election. Distributions paid by March 6, 2027 can be treated as 2026 distributions, shifting income from the trust's 37% compressed bracket (hit at $15,200) to a beneficiary's lower individual rate. The election is filed on Form 1041, Schedule B.

Trust Income Remaining for 2026

Undistributed DNI / income to allocate ($)

Distributable Net Income still inside the trust on Dec 31, 2026.

Amount you plan to distribute by March 6 ($)

Capped at DNI for the §663(b) election.

Beneficiary's 2026 Bracket

Beneficiary filing status

Beneficiary's other 2026 taxable income ($)

No Election (Trust Pays)

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With §663(b) Election

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Tax Saved

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Scenario A: Trust Retains the Income
DNI taxed at trust rates	—
Trust marginal bracket	—
Trust federal tax	—
Scenario B: §663(b) Election — Distribute by March 6
Distribution shifted to beneficiary	—
Income retained by trust	—
Tax on retained portion (trust)	—
Beneficiary marginal bracket on K-1	—
Beneficiary tax on K-1 income	—
Combined federal tax (B)	—
Net Benefit
Annual federal tax saved	—
Deadline to make election	March 6, 2027 (65th day after Dec 31, 2026)

The 65-day rule under IRC §663(b) lets a trustee or executor elect to treat distributions made within the first 65 days of the following tax year as if paid on the last day of the prior tax year. For tax year 2026, the deadline is March 6, 2027. Because non-grantor trusts hit the top 37% federal bracket at only $15,200 of retained taxable income (Rev. Proc. 2025-32), pushing that income onto a beneficiary's K-1 — where it stacks into a 22% or 24% individual bracket — routinely saves $5,000-$20,000 per year. The election is made by checking the box on Form 1041, Schedule B, Line 6.

Who Can Use the §663(b) Election

The 65-day rule is available to complex non-grantor trusts and decedents' estates filing Form 1041. Simple trusts (those required to distribute all income annually) and grantor trusts do not need the election because their income is already passed through. The election is annual and irrevocable for the year it covers — but you can choose to elect (or not) every year. The distribution amount that can be treated as paid in the prior year is capped at the greater of trust accounting income or distributable net income (DNI) for the prior year, less amounts already distributed in that prior year.

How to Make the Election on Form 1041

Three steps. (1) Pay the distribution to the beneficiary by March 6 of the following year — use trust assets, not the trustee's personal account. (2) On Form 1041 Schedule B, Line 6, check the box electing under §663(b) and enter the distribution amount. (3) Issue Schedule K-1 to the beneficiary reflecting the distributed DNI character (interest, dividends, capital gains, etc.). The election must be made by the due date (including extensions) of the trust's Form 1041. Once made it is irrevocable — you cannot later say "actually we wanted to keep that income in the trust."

When the Election Costs More Than It Saves

The election is not always profitable. (1) Beneficiary in same/higher bracket — if the beneficiary already earns over $626,350 and is in the 37% individual bracket, you gain nothing. (2) NIIT stacking — investment-heavy distributions to a high-MAGI beneficiary still face the 3.8% net investment income tax. (3) Kiddie tax — distributions to a minor beneficiary's unearned income above ~$2,700 (2026 est.) are taxed at the parents' marginal rate, eliminating the bracket arbitrage. (4) State tax — a no-tax-state trust (DE, NV, SD, WY) distributing to a CA, NY, or NJ resident shifts the income into the beneficiary's high-tax state. Always model both scenarios first.

Step-by-Step Workflow for Trustees in February

Practical workflow. By February 1: get a preliminary 1099 summary for the trust's brokerage and bank accounts to estimate DNI. By February 15: confirm beneficiary's preliminary 2026 income with their CPA — you need to know their marginal bracket. By February 28: compute the breakeven distribution amount using a calculator like this one. By March 1: wire the distribution. Allow buffer days — March 6 is a hard wall, and weekend banking delays have voided elections in past audits. By April 15 (or extended Form 7004 deadline): file Form 1041 with the §663(b) box checked and issue K-1s.

Last updated May 2026. Sources: IRC §663(b); Rev. Proc. 2025-32 (2026 inflation); IRS Form 1041 instructions, Schedule B, Line 6.