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Old 02-04-2018, 09:01 AM
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Join Date: Feb 2018
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Form 1041 Deduction and NOL question

I am filing 1041 as trustee of a complex irrevocable trust.
All of the taxable income was distributed to the beneficiary
(discretionary, not required). Therefore the Sched B lines 1 and 15
are the same, and same as main form line 17.
I enter this in line 18, and add the $100 deduction in line 20
to get line 21.
Line 22 says to deduct line 21 from line 17.
That results in -$100 because of the $100 deduction added in line 20,
meaning I have a NOL of $100.
This does not seem right.
Why should distributing all the money result in a loss?
Did I do something wrong?
If this is right, how do I handle the NOL?



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Old 02-04-2018, 10:01 AM
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Join Date: Oct 2010
Posts: 5,091
Excess Deductions occur only upon termination of the entity during the last tax year of the trust, and when the total deductions (excluding the charitable deductions and the exemption available to the entity) are greater than the gross income for the entity for the year. These 'excess deductions' are reported in Box 11 of the Sch K-1 (Form 1041) with a code of 'A'. Generally, a deduction based on a Net Operating Loss /nol carryover is not available to the beneficiary as an excess deduction. However, if the final year tax return (Form 1041) filed by the trust is also the final year in which the NOL can be taken by the entity, then the NOL may be taken as an excess deduction. However, beneficiaries cannot deduct any net losses on their return except when the trust is terminated, in which case any unused capital loss carryovers/nol can be used to offset income to the beneficiaries.The distribution deduction cannot exceed the taxable distribution, since taxes must be paid on taxable income either by the trust or by the beneficiaries



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