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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10162
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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My mother had an income trust from my father. I am the

Customer Question

My mother had an income trust from my father. I am the trustee and beneficiary of the trust. The trust had dividend income after she passed that will be recognized in a K-1 to me. There were large capital losses due stock trading that pass through in the final return. Most of those losses occurred while she was alive. I am thinking that to the extent possible those losses should be allocated accordingly which is a different ratio that the incoe. What do you think?
Do you have experience in that area??
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi, yes.

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The losses, given that this is the final return, will retain their character as capital losses, and will pass through to you on the K-1 as well.

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And, as with any capital losses, you must use first against any capital gains you have, then if no gains for a given tax year you can use $3000 against ordinary income

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Then you will carry any unused loss forward and do the same thing for the following year, until the loss is used up.

Expert:  Lane replied 1 year ago.

Remember, capital gains and losses ... and ordinary income (and losses) are two different things ... and do not affect each other (with the exception of the 3000 limit and carryover I mentioned above).

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You cannot arbitrarily decide to allocate Capital losses against ORDINARY income/

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Ordinary income (dividends, interest, passive income such as rents), will retain their character if passed out on the final k-1.

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Capital gains and losses (on the FINAL year 1041) will, as well.

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As you ar the only beneficiary, there is NO "allocation" to be done here ... other than passing out whatever income and losses (and capital gains and capital losses) there are, so that the TRUST doesn't have to pay a the MUCH higher trust rates and brackets.

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Hope this helps to clarify

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