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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
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Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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In an irrevocable complex trust can the stock losses held in

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In an irrevocable complex trust can the stock losses held in that trust pass through to one's personal income tax? In this particular case a gain was made from sale of property held in trust. Why can't one use stock looses to offset the gain..then pay personal tax on difference? In Maine we are told no losses from trust can pass to personal income tax?
Submitted: 5 years ago.
Category: Tax
Expert:  Arthur Rubin replied 5 years ago.
Thinking about it, I'm confused. You say you have a gain from "sale of property held in trust".

Realized (in the same year) stock losses in that same trust can offset the capital gain, but if the losses are in a different trust, they don't pass through to the beneficiaries unless the trusts are treated as being the same for tax purposes. A net capital loss in the trust is handled the same way as for an indiviual, up to $3000 (or sufficient to reduce taxable income to 0) is allowed each year, until used up. When the trust disolves, tax attributes, including capital losses and foreign tax credit carryovers, are distributed to the beneficiaries.
Customer: replied 5 years ago.
Think im beginning to understand. May I go a step further before hitting accept and leaving positive feedback? Yes, there were 2 different trusts..One held realestate the other held stocks. when the RE sold I tranferred all monies into the stock portfolio, thinking his stock losses would offset the RE gain, and apply to his personal income. Q. could I have put his money in some investment account in his name, for a better choice?. So, what I did wrong was to comingle the trusts? LASTLY.. If we had capital gains( none) then capital losses could have been deducted in the stock portfolio; and passed on to the personal income tax.. YES?
Customer: replied 5 years ago.
I understand you answered and I asked if we could finish the explanation. If you feel for $15.00 u can't go further into the explanation ..that is fine. I do and will hit accept but needed this last part..PLEASE
Expert:  Arthur Rubin replied 5 years ago.
Sorry about the delay. I was away from my computer.

Whether the transfer of the real estate proceeds into the stock trust is _legal_ is a _legal_ question, beyond my expertise, and requiring a detailed study of the trust documents.   Exactly what transfers are allowed from an irrevocable trust depend on the trust documents.

It should probably also be pointed out that the trusts and the beneficiary are probably _related_, for the purpose of recognizing gain or loss. If a trust "sells" something to its beneficiary, then capital gains become ordinary, and capital losses are deferred.

However, you may still be able to declare the RE trust the "beneficial owner" of the stocks you put in the stock trust, and issue a nominee 1099 from the stock trust to the RE trust, and putting matters back (for tax purposes) where they probably should have been all along. (This actually is answering a different question than you asked, but it may be the one you should have asked.) You may be able to, in effect, retroactively undo the transfer which you shouldn't have done.

If you (legally, per the trust agreement) distributed the proceeds of the real estate sale to the beneficiary, then much of the gain would also have been transferred, and personal capital losses could offset the gain. If that's what you mean by "putting his money in some investment account in his name", then yes, that would work.

Capital losses still cannot be transferred to beneficiaries (except as a reduction of taxable income, limited to $3000 total for the trust), until the trust closes. It doesn't matter which trust you're talking about. If the stock trust had capital gains, they would be netted with the capital losses, but any excess still doesn't pass to the beneficiaries.

A quick study doesn't find any justification for combining two trusts for tax purposes, except for combining a trust which became irrovocable with the death of the grantor being combined with the grantor's estate.
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1259
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
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