how to distribute capital loss from deceased parents trust

[kirtanwalla]

I am the trustee of my deceased mothers trust. I have sold all assets and have a net capital loss.  As the fiducary and exeutor of the family trust can I use the capital loss for myself before distributing assets to the beneficiaries.

[NCperson]

is your question whether you can take advantage of the capital losses on YOUR tax return as a benefit of your role in the trust, that is actually a legal question as the trust agreement defines who enjoys benefits

On what basis do you believe the Trust Agreement gives you that benefit? This community board has no visibility into what the trust agreement states

Remember, and a lawyer would tell you this, as the fiduciary, you have a fiduciary obligation to execute the trust as written and under the laws of the state where the trust is administered. Failure to do so , leaves you personally liable; I would not take these responsibilities lightly

Otherwise those loss carry forwards should end up on line 11 of the K-1 with a code B for short term loss carry forwards and a code C for long terms’

[gnm9135]

What am I doing wrong?  I keep getting a code C for a short term loss.  What has to be done to reflect a short term loss with a code C on final fiduciary return for a simple trust?

[pk]

@kirtanwalla , agreeing with @NCperson , I just wonder  about the kind of assets that were in the trust because , assuming that this  trust was a revocable trust  and that the Estate had a pour-over  clause, how do you end up with a capital loss. I say this because generally step-up basis of all assets owned by the decedent kind of reduces the chances of any capital loss.   So are you saying that this loss is post  adjustment of basis or what?

Suggest very strongly that you seek professional  tax advice and legal advice on the operation/execution of trustee duties.

What state  was the trust set-up in ?

Namaste ji

[gnm9135]

The trust is in California.  The trust sold the residence lower than appraised value for an immediate no strings attached sale.  Land was also sold at a loss due to commissions and other sales costs from escrow and broker.

[pk]

@gnm9135 , wait , we are getting mixed up in two different queries -- so tell me about your trust with loss , who is the trustor/ grantor ( you or somebody else), did the trust buy the  house in CA or what  i.e. how did the trust acquire the property

[gnm9135]

The trust was set up by my parents through an attorney in California.  My last parent died in March 2018.  In 2018, I filed fiduciary, estate and personal tax returns.  It was a revocable trust.  I am the executor.  The property in the trust was the residence of my mother and has been vacant since she died in 2018.  The residence was appraised at $590,000 and was sold for $475,000 as is.  Sales expense is $1,753. The trust had two parcels of land which were sold and appraised $24,400.  Sales expense on the land is $4,434.  Based on what I have read is that since this is a Final fiduciary return, it can be taken as a short term loss.  I do not know what I have to do to have Turbotax record it as a short term loss.  Help please.  Thank you for your time.

[gnm9135]

I agree with the use of Code B.  If it is Code B, does that mean it can be used  on the 2019 beneficiary personal tax return?

[gnm9135]

The second question is how do I have Turbotax reflect a Code B on the final fiduciary return?

[pk]

@gnm9135  I understand the situation.   you realize of course that  the loss  is only available to the inheritors . and that means you have to issue K-1s to them .  I cant spend time on this tonight  anymore -- but I will replicate the issue on my version of the  TurboTax business  and see  if I can see any errors.  Will come back to you tomorrow  during the day-- than you for your patience

[gnm9135]

Thank you.  Yes. The loss goes to the 4 beneficiaries at 25% each. Thank you again for all your time.

[gnm9135]

I read IRS CFR-1998-title26-vol8-sec1-642h-1 once again but I would like confirmation.  It appears that the beneficiaries of a final fiduciary trust with a capital loss may record it as a short term loss on the current year beneficiary personal tax return regardless as to whether it is a Code B short term loss or Code C long term loss on the trust K-1.  Is that correct?

[pk]

@gnm9135 , I have gone through the  ref you  provided and my opinion is  based on :

 I.R.C. § 1212(b) Other Taxpayers

I.R.C. § 1212(b)(1) In General —

If a taxpayer other than a corporation has a net capital loss for any taxable year—

I.R.C. § 1212(b)(1)(A) —

the excess of the net short-term capital loss over the net long-term capital gain for such year shall be a short-term capital loss in the succeeding taxable year, and

I.R.C. § 1212(b)(1)(B) —

the excess of the net long-term capital loss over the net short-term capital gain for such year shall be a long-term capital loss in the succeeding taxable year.

that the longterm character remains intact  to the extent it is not extinguished by short-term losses.  Thus  K-1 code C  should be applicable -- however  the maximum applicable per  year is still the $3000.   In some ways  I wonder , ( unless of course  the beneficiaries   are in need of  , and can use, the losses for the future years ) why bother with this  -- the basis  of the property is  either the  valuation at the time of death or alternate date  chosen by the  trustee and therefore  if the house sold for $XXXXX , why not  use the FMV as that  ( any appraisal not withstanding ) -- makes life a lot  easier.  Also note  that if the property was never used for business, then it could be classed as personal property of the  beneficiaries and therefore no loss is recognizable  ( only business / investment  losses are allowed ).  Does this make sense ?