26 C.F.R. § 1.642(h)-5 Example.
Title 26 - Internal Revenue
The application of section 642(h) may be illustrated by the following example: Example. (a) A decedent dies January 31, 1954, leaving a will which provides for distributing all her estate equally to A and an existing trust for B. The period of administration of the estate terminates on December 31, 1954, at which time all the property of the estate is distributed to A and the trust. A reports his income for tax purposes on a calendar year basis, and the trust reports its income on the basis of a fiscal year ending August 31. During the period of the administration, the estate has the following items of income and deductions:
(b) Under section 642(h)(1), an unused net operating loss carryover of the estate on termination of $2,000 will be allowable to: A to the extent of $1,000 for his taxable year 1954 and the next four taxable years in accordance with section 172; and to the trust to the extent of $1,000 for its taxable year ending August 31, 1955, and its next four taxable years. The amount of the net operating loss carryover is computed as follows: Neither A nor the trust will be allowed to carry back any part of the net operating loss made available to them under section 642(h)(1). (d) Under section 642(h)(1), there will be allowable to A a capital loss carryover of $2,500 for his taxable year 1954 and for his next 4 taxable years in accordance with paragraph (a) of §1.1212–1. There will be allowable to the trust a similar capital loss carryover of $2,500 for its taxable year ending August 31, 1955, and its next 4 taxable years (but see paragraph (b) of §1.643(a)–3), (for taxable years beginning after December 31, 1963, net capital losses may be carried over indefinitely by beneficiaries other than corporations, in accordance with §1.642(h)–1 and paragraph (b) of §1.1212–1.) (e) The carryovers and excess deductions are not allowable directly to B, the trust beneficiary, but to the extent the distributable net income of the trust is reduced by the carryovers and excess deductions B may receive indirect benefit. [T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6828, 30 FR 7806, June 17, 1965]
Title 26: Internal Revenue
PART 1—INCOME TAXES
Estates, Trusts, and Beneficiaries
§ 1.642(h)-5 Example.
Taxable interest........................................... $2,500Business income............................................ 3,000 ------------ Total.................................................. 5,500 ============Business expenses (including administrative expense 5,000 allocable to business income).............................Administrative expenses and corpus commissions not 9,800 allocable to business income.............................. ------------ Total deductions....................................... 14,800
It also has a capital loss of $5,000.
Deductions of estate for 1954........................... $14,800Less adjustment under section 172(d)(4) (deductions not 7,300 attributable to a trade or business ($9,800) allowable only to extent of gross income not derived from such trade or business ($2,500))............................ --------------- Deductions as adjusted................................ 7,500Gross income of estate for 1954......................... 5,500 --------------- Net operating loss of estate for 1954................. 2,000(No deduction for capital loss of $5,000 under section 172(d)(2))
