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Level 1

Not Carrying Over Capital Loss

How do I not carryover a capital loss?  The taxpayer died in 2018 (Dec 1st) and the loss was in a revocable trust that converted to a irrevocable trust upon his death.  The new irrevocable trust did not earn more than $600 for the last month of the year.  I figure I'm going to have to file a Form 1041 for 2019 that will include the income and final Schedule K-1.  

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Level 1

Not Carrying Over Capital Loss

It looks will have to take the $3000 and the rest is lost.

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Level 15

Not Carrying Over Capital Loss


@Jim M wrote:

How do I not carryover a capital loss?  The taxpayer died in 2018 (Dec 1st) and the loss was in a revocable trust that converted to a irrevocable trust upon his death.


Basis rules apply (see IRC §1014); the basis of all assets become the fair market value on the date of death of the decedent.

 

Of course, that cuts both ways - good if there were a lot of unrealized gains, bad if there were unrealized losses.

 

 

Level 1

Not Carrying Over Capital Loss

It looks will have to take the $3000 and the rest is lost.

View solution in original post

Level 15

Not Carrying Over Capital Loss


@Jim M wrote:

It looks will have to take the $3000 and the rest is lost.


I am not sure what I wrote was clear; you cannot even take the $3000 as a loss if it was an unrealized loss on the date of death.

 

Example: Taxpayer pays $10,000 for shares in a mutual fund. Taxpayer later dies still holding the shares which have declined in value to $5,000 on the date of death, for a $5,000 unrealized loss. The result is the new basis of the shares is $5,000, while the $5,000 loss is wiped out (unusable).

Level 1

Not Carrying Over Capital Loss

The loss had occurred earlier in the year.

 

And since he died near the end of the year, there was less than $600 of income during the final month which means I do not have to file a return for the irrevocable trust for 2018.

 

Next year is another matter.

 

Level 15

Not Carrying Over Capital Loss

If the loss was realized while he was alive, then it belongs to him (i.e., is reported on his final return). 

 

Since this is a trust, not an estate, the filing threshold is gross income of $600 or more or any taxable income for the tax year. 

 

See https://www.irs.gov/instructions/i1041#idm140630132225648