I'm the trustee for our Mom's estate trust. Due to a rental house we inherited from Mom, we have an accumulated a multi year NOL that the beneficiaries originally decided to carry forward until the year the trust would be closing rather than give the NOL to the beneficiaries each year. The rental house has now been sold and we now want to pass on the NOL to the beneficiaries because we will be closing the trust. How do I get the NOL to show up on the form K-1? And, what line on the K-1 is the NOL supposed to show on? I'm using TT Business for the trust taxes on Form 1041. Is there any other info you need to answer my question? Thanks.
An NOL will show up on Line 11 with an E code on your K-1(s).
Also, you most likely did not have a multi-year NOL but, rather, a series of passive losses (unless there was material participation in the rental and/or the rental arose to the level of a business - unlikely).
One other thing is you need to make sure you actually have an NOL.
The sale of a rental property can certainly generate an NOL, BUT after your basis is reduced by accumulated depreciation deductions over the years it is not likely unless the accrued passive losses amount to a rather huge sum.
@charlesbabiarzii wrote:we will be closing the trust.
"Will be" closing or "already closed"? The losses may not be able to pass through to the beneficiaries unless it is a "Final" 1041.
generally net losses can't be distributed until the final year because there is no DNI
@Mike9241 wrote:generally net losses can't be distributed until the final year because there is no DNI
OP: The rental house has now been sold and we now want to pass on the NOL to the beneficiaries because we will be closing the trust.
Thanks M-MTax for the quick reply. I was delayed in looking for a reply.
We had rental income but were slowly fixing up the house for sale when, per the trust, it was to close in 2025. So we have an NOL for each year that was carried forward each year since 2022. When I ran a 'test' return to see how the NOL would carry forward to the K-1s, nothing carried forward. Hence my question. Is TT Business supposed to move the NOL to the K-1s per each beneficiary's percentage? I also tried making the 'test' return the final year and the NOL still did not move to the K-1s. What am I missing? Thanks.
net losses do not pass to the beneficiaries until the year the trust terminates.
see this link
https://www.legacyenhancement.org/blog/2020/november/can-trusts-distribute-losses-/
on your test "final year" return did you indicated the property was disposed of?
Box 11, Codes E and F—NOL Carryover
Upon termination of a trust or decedent’s estate, a beneficiary
succeeding to its property is allowed to deduct any unused net
operating loss (NOL) if the carryover would be allowable to the
trust or estate in a later tax year but for the termination. The
deduction for regular tax purposes, reported as code E, is
reported on Schedule 1 (Form 1040), line 8a.
A deduction for an Alternative Tax NOL (ATNOL) carryover for
alternative minimum tax (AMT) purposes, reported as code F, is
reported on Form 6251, line 2f.
@Mike9241 wrote:net losses do not pass to the beneficiaries until the year the trust terminates.
Again: OP: The rental house has now been sold and we now want to pass on the NOL to the beneficiaries because we will be closing the trust.
@charlesbabiarzii wrote:Is TT Business supposed to move the NOL to the K-1s per each beneficiary's percentage?
Yes, but I think it needs help if I recall. The program has a hard time passing through net losses without any kind of income. You might try to enter some nominal amount like $1.
Also, you could try forms view and see what is available.