A trust is required to distribute all of its income currently. Two years ago, it had a $10,000 capital loss. Last year, it had a $3,000 capital gain. This year, the trust is terminated. Albert has a 40% interest in the trust, and Barbara has a 60% interest. Barbara receives a capital loss pass- through of

Question

Quizplus · Accepted Answer

Since a trust is required to distribute all of its income currently, the net capital loss realized two years ago can offset the net capital gain realized in the current year. Therefore, the taxable income of the trust for this year is $0.

Albert will receive 40% of the trust's loss, which is equal to $4,000. Barbara will receive the remaining 60% of the trust's loss, which is equal to $6,000.

Barbara's share of the loss can offset her share of the gain, resulting in a capital loss pass-through of $3,000 (reflecting only the excess of the loss over the gain). Therefore, the correct answer is B ($4,200 = 40% x $6,000 + $3,000).

A Trust Is Required to Distribute All of Its Income