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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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We have a family trust which is structured to distribute all

Customer Question

We have a family trust which is structured to distribute all income annually to the beneficiary. We have been interpreting "income" as interest, dividends and short-term capital gains/losses. Long-term capital gains/losses are retained in the trust, which pays the tax on them.
In 2008 the trust's short- and long-term capital losses both far exceeded $3,000. We want to distribute the TOTAL short-term loss to the beneficiary , and impose the $3,000 limitation on just the long-term loss which is all retained in the trust. (The beneficiary of course is also limited to claiming a $3,000 loss, but has short- term capital gains from other sources to help offset the loss from the trust).

So QUESTION: Can we assign the trust’s TOTAL short-term loss to the beneficiary via the K-1, and impose the $3,000 limitation on the losses retained in the trust? (We're using Turbotax Business which is great, but its Schedule D has proven to be quite unhelpful in this matter.)
Submitted: 5 years ago.
Category: Tax
Expert:  RD replied 5 years ago.

Trust distributable net income will not include capital gain or loss. They are part of the corpus and not the income and hence you cannot get a distribution deduction for that. YOu cannot distribute the loss to the beneficiary in this case.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 3 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Thanks for the prompt response. Just to be clear: we are thinking of distributing only SHORT TERM losses. We have distributed the trust's short term gains as income in this manner, in the past, without complaint from the IRS. (The Trust document specifies only "Income" for distribution, and short-term gains and losses are indeed taxed as income, and, according to our broker, can be considered as such ). Furthermore, Turbotax DID enter a $3,000 loss on the K-1 when we overrode the schedule D summary to enter the short term loss in the Beneficiary column. I truly don't want to be argumentative but if there's ANY chance the trust can distribute this loss, then the reduction in this year's tax to the beneficiary will be considerable.
Expert:  RD replied 5 years ago.

Capital gains and/or losses are transferred to the beneficiary in the final year of the trust. It generally is not transferred before this period unless the trust document provides otherwise.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 3 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Thanks again. I very much appeciate your participating in this real-time dialogue. I note with hope that you say "generally". But if both trustee and beneficiary agree (along with our broker) that the trust's "income" should include short term capital gains/losses, may we not treat them as such (consistent with what we've done in the past)?
Customer: replied 5 years ago.
Thanks again. I very much appeciate your participating in this real-time dialogue. I note with hope that you say "generally". But if both trustee and beneficiary agree (along with our broker) that the trust's "income" should include short term capital gains/losses, may we not treat them as such (consistent with what we've done in the past)?



Expert:  RD replied 5 years ago.

The treatment would depend on the terms of the trust and not based on the agreement between the beneficiary and the trustee.

 

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

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