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Who should report a land gain: the trust or the beneficiary?

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You are the trustee for the Steadman Trust. The trust has $50,000 of interest income, all of which it plans to distribute to its beneficiaries in the current year. The trust also has $14,000 in net capital losses for the year that are allocated to corpus. The trust distributes some investment land to one of its beneficiaries. The land was acquired eight years ago and has an adjusted basis of $40,000 and a fair market value of $55,000. The beneficiary plans to sell the land.

·What would be the impact on the trust and the beneficiary if an election is made to recognize gain on the land?
·What is the impact on the trust and the beneficiary if the election is not made?
·What you do recommend?

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Solution Summary

The question asks for a discussion about which entity should report a land sale: the trust or the beneficiary. The response lists six ideas about the transaction followed by a tentative conclusion based on limited information.

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1. If the trust recognizes the gain on the land, it can absorb the capital losses sustained during the year.

2. If the election is not made, the trust will have a loss carry-forward to offset future capital gains. No current tax effect to the trust.

3. Depending on the income situation of the beneficiary, it could ...

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