Instructions For Form 5227 (Page 12 of 15) in pdf

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without regard to any capital loss carrybacks and

Gain from the section 1250 long-term capital gain

carryovers. See the Netting Rules, Ordering Rules for

class, then

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Capital Gains and Losses, and Carryover Rules below for

Net gain from the all other long-term capital gain

capital gains.

class, and finally

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Third, as nontaxable income to the extent of the trust’s

Gain from the qualified 5-year long-term capital gain

nontaxable income for the current year and undistributed

class.

nontaxable income for prior years.

3. An overall net long-term capital loss reduces any

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Fourth, as a distribution of trust corpus. For this

net short-term capital gain.

purpose, trust corpus means the net fair market value of

the trust assets less the total undistributed income (but

not loss) in each of the above categories.

Though the qualified 5-year gain provision has

been repealed for sales and other dispositions

Ordering Rules for Ordinary Income

after May 5, 2003, these gains remain in a

CAUTION

separate class because the 5-year gain provision is

Ordinary income is composed of two classes for

scheduled to come back into existence in 2011.

purposes of characterizing and ordering distributions: (a)

qualified dividends, and (b) all other ordinary income. If

No additions may be made to this class for

the trust has both classes of ordinary income,

dispositions after May 5, 2003, and before 2011, but

distributions are treated as made first from the all other

distributions may continue to be made from this class

ordinary income class, and second from the qualified

during that period.

dividends class.

Types of Income

Ordering Rules for Capital Gains and Losses

If there is more than one type of income in a class, treat

The following rules apply to undistributed long-term

an amount distributed from that class as consisting of the

capital gains on assets held more than one year.

same proportion of each type of income that makes up all

If, in any tax year of the trust, the trust has both

current and undistributed income for that class.

undistributed short-term capital gain and undistributed

Example. For 2007, if trust A has interest income and

long-term capital gain, the short-term capital gain is

rental income, both are types of income that belong to

deemed distributed before any long-term capital gain.

the all other ordinary income class. If the amount on line

5 of the Ordinary Income Distribution Worksheet is $150

For 2007, any long-term capital gains are deemed to

for the All other ordinary income class which consists of

be distributed in the following order:

$60 of interest and $90 of rent and $100 is distributed to

1. The 28% long-term capital gain class is deemed

private beneficiaries for 2007, then $40 of the distribution

distributed prior to any other class.

is interest and $60 of the distribution is rent.

2. The section 1250 long-term capital gain class is

deemed distributed prior to the all other long-term capital

Additional Rules for Capital Gains and

gain class and the qualified 5-year long-term capital gain

Losses

class.

3. The all other long-term capital gain class is deemed

Netting Rules

distributed prior to the qualified 5-year long-term capital

Gains and losses are netted within each class to arrive at

gain class.

a net gain or loss for that class. After you net within a

4. The qualified 5-year long-term capital gain class is

class, the following additional netting rules apply to the

deemed distributed last of any class.

capital gains category.

1. Among the long-term capital gain and loss classes:

Carryover Rules

a. A net loss from the 28% long-term capital gain

class reduces net gains in the following order:

1. If the trust has capital losses in excess of capital

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First, gain from the section 1250 long-term capital

gains for any tax year:

gain class, then

a. The excess of the net short-term capital loss over

•

Net gain from the all other long-term capital gain

the net long-term capital gain for that year is a

class, and finally

short-term capital loss carryover to the next tax year.

•

Gain from the qualified 5-year long-term capital gain

b. The excess of the net long-term capital loss over

class.

the net short-term capital gain for that year is a

b. A net loss from the all other long-term capital gain

long-term capital loss carryover to the next tax year.

class reduces net gains in the following order:

2. If the trust has capital gains in excess of capital

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First, net gain from the 28% long-term capital gain

losses for any tax year:

class, then

•

a. The excess of the net short-term capital gain over

Gain from the section 1250 long-term capital gain

the net long-term capital loss for that year is, to the

class, and finally

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extent not deemed distributed, a short-term capital

Gain from the qualified 5-year long-term capital gain

gain carryover to the next tax year.

class.

b. The excess of the net long-term capital gain over

2. A net short-term capital loss is applied to reduce

the net short-term capital loss for that year is, to the

the net long-term capital gain classes as follows:

•

extent not deemed distributed, a long-term capital gain

First, net gain from the 28% long-term capital gain

carryover to the next tax year.

class, then

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Instructions For Form 5227 Page 12

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