How to Deduct Trust Deed Losses
- 1). Determine if the "losses" are recognized in the given year. Losses in property are only taxable when the property is sold for an amount less than the original acquisition price. If property just lost value but was not sold, the loss is not recognized.
- 2). Report losses for 1041 on Schedule D. Report losses and gain from property held for less than a year in Part I of Schedule D, losses and gains from property held for longer than a year on Part II, and determine the net gain or loss on Part III.
- 3). Complete Schedule K-1 for beneficiaries. Each K-1 must have the taxpayer's tax identification number on each return, or the trustee will be charged a $50 penalty for each K-1 missing that identification. Net short-term capital gain is reported on box 3 of the K-1, net long-term capital gains on boxes 4a through 4c, and losses are reported on line 11 with signifying code B for short-term capital loss carryovers and code C for long-term loss carryover.
- 4). Report losses on beneficiaries' personal tax return. For short-term capital losses from the trust, report the amount on line 5 of your personal return's Schedule D. For long-term capital losses, report on line 5 of the worksheet for Schedule D's line 18 and line 16 of the worksheet for Schedule D's line 19. You will also need to report the long-term capital loss on line 12 of your personal return's Schedule D.