Instructions For Form 5227 Page 6
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Washington, DC 20224
Gain from the qualified 5-year gain class taxed at
15/5%.
Inclusion of Amounts in Recipients’ Income
c. A net loss from the 15% rate class reduces net
gains in the following order:
If there are two or more recipients, each will be treated as
•
First, net gain from the 28% rate class, then
receiving his or her pro rata share of the various classes
•
Net gain from the 25% rate class, then
of income or corpus.
•
Net gain from the 20% rate class, then
Amounts distributed by a charitable remainder annuity
•
Gain from the qualified 5-year gain class taxed at
trust or a charitable remainder unitrust have the following
20/8%, and finally
characteristics in the hands of the recipients:
•
Gain from the qualified 5-year gain class taxed at
•
First, as ordinary income to the extent of ordinary
15/5%.
income for the current year and undistributed ordinary
3. An overall net long-term capital loss reduces any
income for prior years of the trust. Ordinary income is
net short-term capital gain.
computed without regard to any net operating loss
deductions under section 172.
Ordering Rules
•
Second, as capital gains to the extent of the trust’s
Ordinary income. Beginning in 2003, ordinary income is
undistributed capital gains. Undistributed capital gains of
composed of two classes for purposes of characterizing
the trust are determined on a cumulative net basis
and ordering distributions: (a) qualified dividends, and (b)
without regard to any capital loss carrybacks and
carryovers. See the Netting Rules, Ordering Rules, and
all other ordinary income. If the trust has both classes of
Carryover Rules for capital gains below.
ordinary income, distributions are treated as made first
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Third, as nontaxable income to the extent of the trust’s
from the all other ordinary income class, and second
nontaxable income for the current year and undistributed
from the qualified dividends class.
nontaxable income for prior years.
Capital gain and loss. The following rules apply to
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Fourth, as a distribution of trust corpus. For this
undistributed long-term capital gains on assets held more
purpose, “trust corpus” means the net fair market value of
than one year.
the trust assets less the total undistributed income (but
If, in any tax year of the trust, the trust has both
not loss) in each of the above categories.
undistributed short-term capital gain and undistributed
The accumulation distribution rules do not apply to
long-term capital gain, the short-term capital gain is
charitable remainder trusts.
deemed distributed before any long-term capital gain.
For 2003, any long-term capital gains are deemed to
Additional Rules for Qualified Dividends and
be distributed in the following order:
Capital Gains and Losses
1. The 28% rate class is deemed distributed prior to
any other class.
Netting Rules
2. The 25% rate class is deemed distributed prior to
Gains and losses are netted within each class to arrive at
the 20% rate class, the qualified 5-year gain class taxed
a net gain or loss for that class. After you net within a
at 20/8%, the 15% rate class, and the qualified 5-year
class, the following additional netting rules apply for
gain class taxed at 15/5%.
2003:
3. The 20% rate class is deemed distributed prior to
1. A net short-term capital loss is applied to reduce
the qualified 5-year gain class taxed at 20/8%, the 15%
the net long-term capital gain classes as follows:
rate class, and the qualified 5-year gain class taxed at
•
First, net gain from the 28% rate class, then
15/5%.
•
Net gain from the 25% rate class, then
4. The qualified 5-year gain class taxed at 20/8%, is
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Net gain from the 20% rate class, then
deemed distributed prior to the 15% rate class and the
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Gain from the qualified 5-year gain class taxed at
qualified 5-year gain class taxed at 15/5%.
20/8%, then
5. The 15% rate class is deemed distributed prior to
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Net gain from the 15% rate class, and finally
the qualified 5-year gain class taxed at 15/5%.
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Gain from the qualified 5-year gain class taxed at
6. The qualified 5-year gain class taxed at 15/5% is
15/5%.
deemed distributed last of any class.
2. Among the long-term capital gain and loss classes:
Carryover Rules
a. A net loss from the 28% rate class reduces net
gains in the following order:
1. If the trust has capital losses in excess of capital
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First, net gain from the 25% rate class, then
gains for any tax year:
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Net gain from the 20% rate class, then
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a. The excess of the net short-term capital loss over
Gain from the qualified 5-year gain class taxed at
the net long-term capital gain for that year is a short-term
20/8%, then
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capital loss carryover to the next tax year.
Net gain from the 15% rate class, and finally
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b. The excess of the net long-term capital loss over
Gain from the qualified 5-year gain class taxed at
the net short-term capital gain for that year is a long-term
15/5%.
capital loss carryover to the next tax year.
b. A net loss from the 20% rate class reduces net
2. If the trust has capital gains in excess of capital
gains in the following order:
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losses for any tax year:
First, net gain from the 28% rate class, then
•
Net gain from the 25% rate class, then
a. The excess of the net short-term capital gain over
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Gain from the qualified 5-year gain class taxed at
the net long-term capital loss for that year is, to the extent
20/8%, then
not deemed distributed, a short-term capital gain
•
Net gain from the 15% rate class, and finally
carryover to the next tax year.
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