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Bypass trust Return

I am a beneficiary of a Bypass trust. I understand that the trust income will distribute to me via schedule K1. My tax return is done by a tax accountant. So I do not no the details how it work. I recently had a tax return question and asked my tax accountant. He was able to answer. So I am seeking help in the forum. Below is my question:

 

Does the distributed income/loss in the Bypass stock account simply combine with the beneficiary’s income for tax purposes? Here I am using some numbers to clarify my question:

Assume that the Bypass trust’s stock account has the following outcomes:

Long-term gain: $10,000

Short-term gain: $10,000

Short-term loss: $20,000

 

and the beneficiary’s own stock account has the following outcomes:

Short-term gain: $10,000

 

My question is, can the short-term loss (20,000) in the Bypass trust to be used to offset both the short-term loss ($10,000) in the Bypass account and in the beneficiary’s own stock account ($10,000)? Or can it only offset the gains (long or short) in the Bypass account? In other words, does the beneficiary pay long- or short-term gain for the $10,000 net gain? Vice versa, can a beneficiary’s own stock account loss offset the Bypass account’s gain?

 

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10 Replies

Bypass trust Return

capital gains and losses are combined at the trust level and losses don't pass through until the trust dissolves so you have $10k in long term capital gain.

Bypass trust Return

If the losses don’t pass through, then the $20k short term loss in the trust should offset my $10k short term gain and $10k long term gain within the trust. As a result, I will have $10k short term gain in my own stock account, instead of $10k long term gain in the trust to pay tax, correct?  

Bypass trust Return

You have a $10k short term gain in your account and a $10k long term gain from the k1 you will get from the trust.

Bypass trust Return

If I have $10k long term gain left from trust and $10K short term gain from my own account to pay tax, what about $10k short term loss left in the trust?

Bypass trust Return

That loss stays in the trust until the trust ends and then it's released.

Bypass trust Return

Why the short-term loss is not able to offset the long-term gain in the trust? Below is what I found from https://turbotax.intuit.com

“Losses on your investments are first used to offset capital gains of the same type. So short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.”

 

Is trust different from individual tax return rule?

Bypass trust Return


@patyan2001 wrote:

Why the short-term loss is not able to offset the long-term gain in the trust?


I think there is a math error here somewhere because the long-term and short-term gains in the trust would be exactly offset by the short-term loss in the trust; the net gain/loss for the trust would be zero. 

 

The short-term gain in your account of $10,000 would not be offset by any loss in the trust.

Bypass trust Return

I understand that the short-term or long-term losses in the trust should be able to offset any gain in the trust. My original question was whether the short-term loss can pass through to my own stock account to offset my short-term gain in that account or not. If so, in this example, I would like to use my $20k short-term loss in the trust to first offset $10k short-term gain in the trust, then offset $10k short-term gain in my own account. Finally, I will pay tax for the remaining $10k long term gain in the trust.

 

Based on the answers that I have received, I would like to confirm my understanding as follows:

The loss in the Bypass trust (long or short) can only offset the gain in the Bypass trust (long or short), it cannot pass though to my own account to offset my gain there even if the trust income is supposed to distribute to me and taxed with my tax ID (not taxed with trust ID).

 

 

Bypass trust Return


@patyan2001 wrote:

The loss in the Bypass trust (long or short) can only offset the gain in the Bypass trust (long or short), it cannot pass though to my own account to offset my gain there even if the trust income is supposed to distribute to me and taxed with my tax ID (not taxed with trust ID).


That is exactly correct; the trust is a separate entity with gains/losses being netted at the trust level. Any net losses, however, cannot be distributed to the beneficiary(ies) until the trust terminates.

 

Bypass trust Return

I am clear now. Thank  you very much Smarttees and Tagteam. I really appreciate your help. 

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