A trust of which DD was the beneficiary terminated in 2015 with capital losses of about $20,000. We have since learned that she can carryover this loss indefinitely to offset future capital gains, but we didn’t know that at the time and neither did she. DD is an adult and has used Turbotax (or similar) to submit returns.
I have a sense that it should be fairly straightforward to fix this (probably amending 2015, 2016 and 2017 returns?) but am not sure how to go about it. She has asked for our advice about how to proceed and I thought I’d ask CCers if anyone might be able to explain what to do – which form to use, etc. I started to read IRS Capital Loss Carryover Worksheet instructions, but found them quite overwhelming. DD has no investments, just a bank account, so would not have been able to utilize the carryover yet.
Many thanks for any advice you might be able to offer!
Was the loss on a Schedule K-1 and she just didn’t enter the info from it in 2015?
The form to amend is 1040X. I am not familiar with TurboTax so I don’t know if it can start with her originally filed 1040 and help her generate a 1040X from there. She would deduct $3000 per year (even without any gains to offset), so amending three years is going to use up $9000. Maybe she will get some refunds from this!
Don’t forget to amend State returns too, if you are in a state with income tax.
yes, you can. It would be easier if you still have the '15 ver t-tax; that way, it has the correct rules.
btw: did she just not enter the loss? Normally, T-tax will pick up any loss carry-forwards when you load 2016 from the 2015 files.
Thank you very much for the helpful replies. I did not realize the losses could be applied even without gains to offset.
Yes, the loss was on a Schedule K-1 and she just didn’t enter it onto her 1040.
I just realized that the trust closed in 2014, not 2015. Its final Form 1041 for 2014 was filed in April, 2015. Since the capital loss carryover of 3,000 was applied on that form, I am assuming that she should have reported the residual amount on her 2015 Form 1040 (not her 2014 Form 1040). Is that right?
I am finding conflicting info about whether she will be able to do this within turbotax or will have to download form 1040X and complete it manually. I guess she will just have to log in and see!
She reports according to her K-1. If she got a 2014 calendar year K-1 with the loss, she takes the loss in 2014, then completes the 2014 capital loss carryforward worksheet to see what carries forward to 2015.
Some of the refunds may be barred by statute; the loss gets used up regardless.
Sorry, I am not very savvy here and want to be sure I understand.
The 2014 Form 1041 K1 is from the Trust, which ran out of funds and was closed in 2014. A $3,000 loss was taken on that Form 1041 for 2014. Are you saying that she does not need to amend her 2014 Form 1040, but she uses the worksheet to figure out the amount to carry forward in order to amend 1040s for 2015, 2016 and 2017?
If she didn’t file an extension for 2014, that year is no longer open for claiming refunds, so just calculating the carry forward would be fine. Amending 2014 isn’t required.
What happened inside the 1041 isn’t relevant; most beneficiaries have no access to the full 1041. Only her K-1 is relevant to her return.
She needs to keep the K-1, the carryforward worksheets, and all the intervening tax returns (2014 forward), both as originally filled and as amended, until the statute runs for the year that the carryforward is finally used up, in case she ever needs to prove the existence and amount of the carryforward.
You are being very clear, but I am feeling quite dull. Thanks so much for the advice and for bearing with me as I try to grasp this.
So even though the $3,000 loss was already utilized by the trust in 2014, she will need to deduct another $3,000 from the carryover amount for 2014? Or can she just claim the full amount of the carryover on her amended 2015 1040, since the trust closed out its existence at the end of the 2014 tax year?
The 1041 is not relevant to your daughter’s returns. Only the K-1 is relevant. Follow the K-1 instructions.