When a trust distributes an in-kind asset with a realized loss, most likely this loss cannot be immediately deducted by the first-tier beneficiary.

Question

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When a trust distributes an in-kind asset with a realized loss, the first-tier beneficiary cannot immediately deduct the loss. The beneficiary's basis in the asset will be the same as the trust's basis, and any loss must be carried forward and offset against future gains or deducted when the asset is sold.

When a Trust Distributes an In-Kind Asset with a Realized