Trusts Final Year Issues

The final year of a trust or estate requires some consideration of the different tax treatment of all items of income and deduction. Here are some important things to keep in mind:

  • All income is passed out (via K-1) to the beneficiaries in the final year of a trust or estate. This includes capital gains (which are generally taxed within the trust).
  • All income items (including these capital gains) are passed out net of allowed deductions.
  • Capital losses and excess deductions pass out, and are deductible by the beneficiaries.
  • Passive losses are not passed out, but adjust the basis of interests now held by beneficiaries.
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