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Old 07-23-2015, 06:36 PM
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Distribute 1041 estate loss to heirs on K-1?

In 2013 the estate return I prepared had a gain, and the heirs were all taxed on the gain via K-1's. In 2014 the estate had a loss, but the H&R Block Premium & Business tax software didn't generate anything which would pass the loss along to the heirs. It seems logical that if the gains were distributed then the loss could be as well.

So my question is can the estate pass along the loss to the heirs? If so, I should be able to ask H&R Block how to make that happen with their software.

I have been unable to find any resource that addresses this scenario, and any help would be greatly appreciated.



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Old 07-24-2015, 07:07 PM
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In 2013 the estate return I prepared had a gain, and the heirs were all taxed on the gain via K-1's. In 2014 the estate had a loss, but the H&R Block Premium & Business tax software didn't generate anything which would pass the loss along to the heirs. It seems logical that if the gains were distributed then the loss could be as well. ========>>Except in the final year return of the Trust's operation, the tax law does not allow the distribution of LOSSES, whether immediate or accumulated, to be distributed to the beneficiaries, irrespective of any reference to "Look to the Trust Document."

If the Trust is a Complex Trust though you did not mention if it was, it is legally possible to distribute gains, however, it needs to also be permissible under relevant state laws of the state of residency of the Trust. Many states do not allow this and instead the state law puts the burden of the capital gains tax at the state level on the Trust. So you need to determine if the state of residency permits distribution of gains. Then,, you need to look at the Trust document to see if it permits and under what conditions.

So my question is can the estate pass along the loss to the heirs? If so, I should be able to ask H&R Block how to make that happen with their software.=====>>>>AS mentioned above; Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. A net capital loss of an estate or trust will reduce the taxable income of the estate or trust, but no part of the loss is deductible by the beneficiaries. If the estate or trust distributes all of its income, the capital loss will not result in a tax benefit for the year of the loss. Losses from the sale or exchange of capital assets are first netted at the trust level against any capital gains, except for capital gains utilized by the fiduciary in determining the amount to be distributed to a particular beneficiary.On termination of an estate or trust, any unused capital loss carryover of the estate or trust is available to the beneficiaries .



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