Additional consideration to pk answer is the passive activity losses. IRC § 469(j)(12): When an estate or trust distributes a passive activity, losses are not deductible by the estate or trust. They are added to the beneficiary’s basis.
However to release passive activity losses.
Passive losses are generally deductible only to the extent of passive income. However, current and suspended losses are fully deductible if there is a “qualifying disposition.” Under IRC § 469(g), a “qualifying disposition” requires three criteria:
1. Disposition of an entire interest (or substantially all[1])
2. In a fully taxable event (where all gain/loss is realized and recognized).
3. To an unrelated party.
Generally The passive activity rules apply to:Individuals,Estates,and Trusts.
IV.IRC §267 RELATIONSHIPS
IRC §267(b) has 13 different relationships that make up related parties. These are:[only listed applicable]
1. Members of a family, including:
Husband and wife;
Brothers and sisters — including half-siblings;
Ancestors — parents, grandparents, etc.; and
Lineal descendants — children (including adopted children),1 grandchildren, etc.;
4. A grantor and a fiduciary of any trust;
5. A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;
6. A fiduciary of a trust and a beneficiary of the trust;
7. A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;
You might want to seek the advice of a tax professional proficient in trusts and passive activity loss rules.
