# Distributable Net Income (DNI): Definition, Formula, & Examples

## What Is Distributable Net Income (DNI)?

Distributable net income (DNI) is the amount a trust can pay to its beneficiaries. It plays an important role in taxation and is calculated using the trust’s taxable income, exemptions, and capital gains or losses. DNI helps minimize double taxation. The IRS uses DNI to guide how trusts and beneficiaries report taxes. It ensures that beneficiaries receive a steady income stream while benefiting from tax advantages.

### Key Takeaways

*   Distributable net income (DNI) is the amount paid to trust beneficiaries and the maximum taxable income they receive.  
    
*   DNI aims to provide beneficiaries with a reliable income while reducing taxes for the trust.  
    The formula for DNI is: Taxable Income - Capital Gains + Tax Exemption.  
    
*   Capital gains are excluded from DNI to prevent double taxation.  
    
*   Trusts and estates can deduct DNI or required distributed income, whichever is less, to avoid double taxation.  
    

## How Distributable Net Income (DNI) Works

The Internal Revenue Service (IRS) considers distributable net income to be an estimate of the economic value that stems from a [distribution](https://www.investopedia.com/terms/d/distribution.asp) to a beneficiary. A distribution is a payment made from an estate or an income trust to a beneficiary.

DNI is intended to provide trust beneficiaries with a reliable income source while minimizing the amount of income taxes paid by the trust.

[Estates](https://www.investopedia.com/terms/e/estate.asp) and non-grantor trusts, like individuals, must file income tax returns. Non-grantor trusts are funded by the [grantor](https://www.investopedia.com/terms/g/grantor.asp)—the person or entity that creates the trust. But this kind of trust functions entirely on its own, as the grantor gives up control of the assets to the trust.

The income these trusts report is taxed at either the entity or beneficiary level. Which level is taxed depends on whether it is allocated to the principal amount or to the distributable income, and whether the amount is distributed to the beneficiaries. 

U.S. tax code allows estates and [trusts](https://www.investopedia.com/terms/t/trust.asp) to deduct the lesser of the required distributed trust income or the DNI, preventing [double taxation](https://www.investopedia.com/terms/d/double_taxation.asp).

An income trust recognizes distributable net income as an amount transferred to unitholders. With an estate trust, it’s the amount to be distributed to a beneficiary.

> **Tip**
>
> Estates and trusts are allowed to deduct the distributable net income or the sum of the trust income required to be distributed—whichever is less.

## Important Points About Distributable Net Income (DNI)

Calculating distributable [net income](https://www.investopedia.com/terms/n/netincome.asp) helps prevent double taxation of funds issued by a trust. The formula to calculate the figure is as follows:

*   **Distributable Net Income (DNI)** = Taxable Income - Capital Gains + Tax Exemption

In instances where there are [capital losses](https://www.investopedia.com/terms/c/capitalloss.asp), that figure replaces the capital gains and is added to the formula instead of subtracted.

> **Important**
>
> The personal exemption was repealed for individuals through 2025, but it was not repealed for trusts and estates. Trusts are allowed $100 or $300 exemptions, while estates are allowed a $600 exemption.

To calculate the [taxable income](https://www.investopedia.com/terms/t/taxableincome.asp), you need to add the interest income, [dividends](https://www.investopedia.com/terms/d/dividend.asp), and capital gains, then subtract any fees and tax exemptions.

Unlike for the DNI calculation, capital gains are added in the taxable income formula while capital losses are subtracted.

## Comparing Distributable Net Income (DNI) and Net Income

Distributable net income is not the same as [net income](https://www.investopedia.com/terms/n/netincome.asp). DNI is the income distributed from a trust to its beneficiary or beneficiaries. Net income is used by a public company to calculate its [earnings per share](https://www.investopedia.com/terms/e/eps.asp) (EPS), which is the total profit of a company divided by the number of outstanding shares of its common stock. (Net income is also referred to as net earnings.)

Net income appears on a company's balance sheet and helps indicate how profitable the company is. To calculate its net income, companies subtract any general and administrative expenses, operating expenses, interest, taxes, other expenses, and the [cost of goods sold](https://www.investopedia.com/terms/c/cogs.asp) (COGS) from the total amount of sales.

In a broader context, net income can mean an individual's [take-home pay](https://www.investopedia.com/terms/t/take-home-pay.asp), which is earnings after deductions like taxes, healthcare, and insurance.

A person's net income can be contrasted with their [gross income](https://www.investopedia.com/terms/g/grossincome.asp)—the amount they earn before any deductions.

## Practical Example: Calculating Distributable Net Income (DNI)

Here's an example of how DNI is calculated using a fictional trust we'll call ABC Trust. Let's say ABC Trust reported total income of $40,000. Interest income was $10,000 of this, while the remaining $30,000 was derived from dividends. Fees charged by the trust amounted to $3,000, and the trust realized a [capital gain](https://www.investopedia.com/terms/c/capitalgain.asp) of $15,000. An [exemption](https://www.investopedia.com/terms/e/exemption.asp) of $300 applied to the trust.

If we use the formula above, the trust's taxable income is $51,700:

*   $51,700 = $10,000 (interest income) + $30,000 (dividends) + $15,000 (capital gain) - $3,000 (fees) - $300 (exemption)

We can then use this taxable income figure to calculate the DNI, which would be $37,000:

*   $37,000 = $51,700 (taxable income) - $15,000 (capital gain) + $300 (exemption)

## What Is the Difference Between Taxable Income and Distributable Net Income?

A trust's taxable income includes interest income, dividends, and capital gains, and it subtracts any fees, tax exemptions, and capital losses.

For the DNI calculation, capital gains are subtracted back out, while tax exemptions and capital losses are added back in.

## Does Distributable Net Income Include Capital Gains?

Distributable net income excludes capital gains and losses. It is removed from the taxable income figure for the purposes of calculating DNI.

## What Are the 2024 Trust and Estate Exemption Amounts?

In 2024, a decedent's estate is allowed a $600 exemption, a trust required to distribute all income is allowed a $300 exemption, and a qualified disability trust is allowed a $5,000 exemption. All other trusts are allowed a $100 exemption.

## The Bottom Line

Distributable net income represents how much of a trust’s income can be given to its beneficiaries. It helps prevent double taxation and is calculated by taking the trust’s taxable income, subtracting capital gains, and adjusting for exemptions or losses. DNI sets the maximum taxable amount for beneficiaries, ensuring they get a steady income while keeping taxes low. It’s important to check exemptions regularly, especially when tax rules change.

> **Article Sources**
>
> 1.  Cornell. "[26 U.S. Code 661 - Deduction for Estates and Trusts Accumulating Income or Distributing Corpus](https://www.law.cornell.edu/uscode/text/26/661)."
>     
> 2.  Journal of Accountancy. "[Trust and Estate Income Tax Returns Under the TCJA](https://www.journalofaccountancy.com/issues/2019/mar/trust-estate-income-tax-returns-under-tcja.html)."
>     
> 3.  Internal Revenue Service. "[2024 Form 1041-ES](https://www.irs.gov/pub/irs-access/f1041es_accessible.pdf)," Pages 1 and 2.