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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Trust capital loss carryover skips years Date: 2/29/2008 1:07 PM
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How should I report a capital loss carryover in a trust, when it was not reported for two years?

In 2004, I had a capital loss in a trust, which was reported on Schedule D.

In 2005 and 2006, I had no capital gains or losses in the trust, and didn't file a Schedule D. I now realize that I should have filed a Schedule D, to show the carry forward of the capital loss.

This year, I have a capital gain in the trust. I would like to offset part of it with the 2004 capital loss.

1. Is there a statute of limitations on capital gain offsets? Can I offset a 2007 capital gain with a 2004 capital loss?

2. Can I show the carry forward of the capital loss on the 2007 Schedule D, even though I didn't file a Schedule D in 2005 and 2006? Can I add a page of explanation instead?

3. If I have to file the Schedule D's for 2005 and 2006, to show the capital loss carryover, how should I do this? I wasn't able to find a 1041X (trust amended return) to correspond to the 1040X (regular amended return). The capital loss makes no difference to the tax owed in these two years, since there were no gains to offset it.

Thank you for your help!
Wendy
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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99148 of 121061
Subject: Re: Trust capital loss carryover skips years Date: 2/29/2008 2:53 PM
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1. Is there a statute of limitations on capital gain offsets? Can I offset a 2007 capital gain with a 2004 capital loss?

Yes

2. Can I show the carry forward of the capital loss on the 2007 Schedule D, even though I didn't file a Schedule D in 2005 and 2006? Can I add a page of explanation instead?


I don't know the answer to this question, but it's probably NO

3. If I have to file the Schedule D's for 2005 and 2006, to show the capital loss carryover, how should I do this? I wasn't able to find a 1041X (trust amended return) to correspond to the 1040X (regular amended return). The capital loss makes no difference to

the tax owed in these two years, since there were no gains to offset it.


Use a regular 1041 and mark it Amended Return in Box F at the top of the form under the Name Box. For instructions go to page 16 of the instructions. You will have to complete a Schedule D (1041) and refigure all the applicable entries and add entries for the carryover capital loss on the amended 1041.

Do that for both years and you can use the carryover loss UNLESS you hade retained any income in the trust in which case you would have to use the loss to offset up to $3,000 of it each year.

Good luck

ed

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99152 of 121061
Subject: Re: Trust capital loss carryover skips years Date: 2/29/2008 6:32 PM
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I agree with ed. File amended returns for 2005 and 2006 to document how much of the capital loss is still available. In addition to checking the box at the top of the 1041, I would attach an explanation to each of the amended returns explaining why you're amending and what the impact is on that return. It always helps to direct the IRS reviewer to the relevant parts so that they don't waste time reviewing (and perhaps questioning) other things.

Ira

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