Sometimes my head can't convert thought processes when ordinary math carries negative numbers.
Estate is established with a corpus. In Year One, there is a profit, distributions are less than profits, estate pays taxes on the profit less distribution, and so the net growth in the estate becomes part of the corpus for future years. Beneficiaries receive a K-1 for the distributions, with the character of the income preserved. At least this is the standard process.
Where things get fuzzy is when Year One has a loss. There is no distribution of profits, (but if there is a distribution it is not taxable because corpus is liquidated). Year Two has a loss as well, and finally the remaining corpus is liquidated. In Year One, 1041 is filed with a loss and there is no K-1. In Year Two, 1041 is also filed with a loss.
Question: How do the beneficiaries ever receive a tax benefit from the loss? Upon final distribution, do they receive a K-1 showing the loss? It's hard to say they received distribution of a loss since there's nothing received but corpus.
Estate is established with a corpus. In Year One, there is a profit, distributions are less than profits, estate pays taxes on the profit less distribution, and so the net growth in the estate becomes part of the corpus for future years. Beneficiaries receive a K-1 for the distributions, with the character of the income preserved. At least this is the standard process.
Where things get fuzzy is when Year One has a loss. There is no distribution of profits, (but if there is a distribution it is not taxable because corpus is liquidated). Year Two has a loss as well, and finally the remaining corpus is liquidated. In Year One, 1041 is filed with a loss and there is no K-1. In Year Two, 1041 is also filed with a loss.
Question: How do the beneficiaries ever receive a tax benefit from the loss? Upon final distribution, do they receive a K-1 showing the loss? It's hard to say they received distribution of a loss since there's nothing received but corpus.
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