Allocating unused capital loss carry forwards to beneficiaries

[tkl1949]

I am using Turbo Tax Business to prepare a 2023 1041 tax return for a complex trust.  The trust will distribute all remaining assets to trust beneficiaries in March 2024 and will have no income in 2024.  Should the 2023 1041 tax return be marked as the final return for the trust?   The trust had income in 2023 and will use capital loss carry-forwards to reduce the trust’s taxable income by $3,000.   After those capital loss carry-forwards are applied on the 2023 1041 return, the trust will still have $2,634 in unused capital loss carry-forwards.   Can I allocate those remaining capital loss carry-forwards among the trust beneficiaries in the Trust’s 2023 Form 1041 and provide each beneficiary with a K-1 showing the loss carry-forward allocated to the beneficiary?   If yes, can a beneficiary utilize the capital loss carry forward to reduce the beneficiary’s 2023 taxable income or does the beneficiary have to wait until 2024 to utilize the carry-forward since the trust will have already utilized $3,000 to reduce the Trust’s 2023 taxable income?   

[tkl1949]

I understand that the unused loss carry-forwards will be allocated to trust beneficiaries on the K-1s for the Trust's final return (2023).  But can the trust beneficiaries utilize the loss carry forwards from that K-1 to reduce 2023 the beneficiary's taxable income?  Or do they have to wait until 2024 to utilize the loss carry-forwards since the Trust will have reduced Trust taxable income on its final 2023 return by $3,000 of loss carry forwards which is the maximum amount the Trust is allowed per year?

[tkl1949]

I now understand that the 663(b) election can be used to make the final distributions from the trust effective for 2023 so long as we complete the distributions within 65 days from the close of 2023. (Thanks for pointing that out!  It will be helpful!!)    But I'm still wondering about a beneficiary's ability to utilize capital loss carry forwards that are allocated on the K-1s from the Trust to reduce a beneficiary's taxable ordinary income for 2023.   The Trust will already have utilized $3,000 of capital losses on the Trust's 2023 1041 return to reduce the Trust's taxable income for 2023.    $3,000 is the maximum amount of capital loss carry forwards that can be used to reduce ordinary income for the Trust.   Will allowing a beneficiary to reduce the beneficiary's ordinary income in 2023 by applying the loss carry forward from the Trust's 2023 K-1 violate that $3,000 annual limitation since it would mean that more than $3,000 of the Trust's loss carry forwards would have been used to reduce ordinary income?    Or does that fact that the loss carry forwards will be on a return for a trust beneficiary and not the trust itself allow for a second reduction of ordinary income up to $3,000?

[Kaelen-Shay]

@Anonymous_ My questions is can the beneficiaries carryforward the losses they received from the estate to future years to offset capital gains, or do they lose those losses if they can't utilize them all in the year the beneficiaries received them? For example, a beneficiary receives ($93,000) of losses from the estate via the K-1 which lands on the individuals Sch D line 12. They have $5,000 of LTCG that reduces the loss to ($88,000). Are they able to carry forward the ($88,000) to future years where they have capital gains to offset it?