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pritchardmeaseley
Returning Member

Capital loss carryover in a trust that allocates capital gains to the beneficiary

My trust allocates capital gains to the beneficiary, but I understand that capital losses are to be trapped within the trust until carried forward and used to offset future gains or transferred to the beneficiary when the trust terminates.

 

The trust generated a LT capital gain (~$20K) allocated to the beneficiary, and a ST loss (~$3K). TT won't calculate the ST loss carryover.  How do I do this?  Tks

6 Replies
tagteam
Level 15

Capital loss carryover in a trust that allocates capital gains to the beneficiary


@pritchardmeaseley wrote:

The trust generated a LT capital gain (~$20K) allocated to the beneficiary, and a ST loss (~$3K). TT won't calculate the ST loss carryover.  How do I do this? 


You are correct about capital losses being "trapped" until termination, but capital losses do offset capital gains at the trust level. The roughly $3,000 loss will offset part of the $20,000 gain before distribution. 

pritchardmeaseley
Returning Member

Capital loss carryover in a trust that allocates capital gains to the beneficiary

Tks, I see that now, TT still holds the ST loss in the trust column, but the distributed amount is offset by the loss.

pritchardmeaseley
Returning Member

Capital loss carryover in a trust that allocates capital gains to the beneficiary

Thanks, I'm still puzzled... I see that TT off-sets the gain with the ST loss and that's reflected in the amount distributed, but the LT loss without being offset is what flows through to the K-1.

 

How do I correct this?  Do I over-ride at the step-by-step interview by netting the gain and loss and inserting that figure at the interview question: Allocation of LT cap gain, Enter gains attributable to income

and, on the following page...

Enter a different amount below if your trust document attributes a different amount of capital gains to income (this is uncommon).  

 

I'm wary of the latter... my trust document allows distribution of principal (cap gains) at the trustee's discretion, but doesn't go into more detail. 

 

Thanks, appreciate your help.

tagteam
Level 15

Capital loss carryover in a trust that allocates capital gains to the beneficiary

Can you provide more details regarding your distribution because now I am puzzled. Why would the loss, that was presumably offset at the trust level, be passed through to the beneficiary on the K-1?

 

No offense, but there has to be an input error somewhere along the line. If you have a net gain of $17,000 ($20,000 gain less $3,000 loss), then you can allocate that figure to income and distribute it to the beneficiary if you have the authority in the trust doc to do so, and that should be reflected (as a gain) on the K-1.

pritchardmeaseley
Returning Member

Capital loss carryover in a trust that allocates capital gains to the beneficiary

I expected the net gain ($17K) would pass through to the side-by-side interview question, and appear as the default on the screen that prompts for "Enter gains attributable to income" and on the following page that prompts for "Enter a different amount below if your trust document attributes a different amount of capital gains to income."

 

Instead, those boxes are populated with the LT gain only ($20K) and to have the net gain flow to the K-1 i need to enter the the $17K net gain in those boxes.  Is that correct?

tagteam
Level 15

Capital loss carryover in a trust that allocates capital gains to the beneficiary

You should enter $17,000 because that should be the trust's accounting income.

 

The program, frankly, encounters issues in this exact type of situation (i.e., where there is a loss, that technically cannot be distributed until the trust is terminated, combined with a larger gain that the trustee has the discretion to distribute). The loss offsets the gain, but the issue is attributing the exact amount to the income (it ignores the loss).

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