View Single Post
Old 02-19-2020, 10:27 AM
Tired and Cranky is online now
Join Date: Dec 2014
Posts: 1,801
This is outside my bailiwick and my personal experience, but I think Tom Tildrum is basically right. I might be wrong though, so talk to an accountant or trust lawyer.

If I understand correctly, the general rule is that the trust has to carry the loss forward and use it to offset future income. If it's the trust's last year, however, it can distribute the loss to the trust beneficiaries on the schedule K-1. They can use the loss to offset income on their personal tax return.

The instructions for Form 1041 (p. 27) say:

On the termination of the estate or trust, any unused NOL [net operating loss] carryover that would be allowable to the estate or trust in a later tax year, but for the termination, is allowed to the beneficiaries succeeding to the property of the estate or trust. See the instructions for Schedule K-1 (Form 1041), box 11, codes D and E, later.
The same document has the Schedule K-1 instructions, which say (p. 40):

You can't show any negative amounts for any class of income shown in boxes 1 through 8 of Schedule K-1. However, for the final year of the estate or trust, certain deductions or losses can be passed through to the beneficiary(ies). See the instructions for box 11 for more information on these deductions and losses.
The instructions to Box 11, Code A (p. 41) explain how to pass the loss through to the beneficiaries on the K-1. It says to allocate the losses to beneficiaries in accordance with Internal Revenue Code Sec. 1.642(h)-4. I can't for the life of me figure out how that allocation works though.

Good luck.