Frequently Asked Questions
Who is eligible for the Election to Recognize Gain on Property Distributions?
Applies to non-cash distributions from estates or trusts; election applies to all distributions made during the taxable year.
How does the Election to Recognize Gain on Property Distributions work?
Fiduciary can elect to recognize gain/loss on property distributions as if sold at FMV, which steps up the beneficiary's basis and may utilize trust-level losses.
What law authorizes the Election to Recognize Gain on Property Distributions?
The Election to Recognize Gain on Property Distributions is authorized under IRC §643(e)(3) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §643
Source: Internal Revenue Code, Title 26, United States Code
§ 643. Definitions applicable to subparts A, B, C, and D(a) Distributable net incomeFor purposes of this part, the term “distributable net income” means, with respect to any taxable year, the taxable income of the estate or trust computed with the following modifications—(1) Deduction for distributionsNo deduction shall be taken under sections 651 and 661 (relating to additional deductions).
(2) Deduction for personal exemptionNo deduction shall be taken under section 642(b) (relating to deduction for personal exemptions).
(3) Capital gains and lossesGains from the sale or exchange of capital assets shall be excluded to the extent that such gains are allocated to corpus and are not (A) paid, credited, or required to be distributed to any beneficiary during the taxable year, or (B) paid, permanently set aside, or to be used for the purposes specified in section 642(c). Losses from the sale or exchange of capital assets shall be excluded, except to the extent such losses are taken into account in determining the amount of gains from the sale or exchange of capital assets which are paid, credited, or required to be distributed to any beneficiary during the taxable year. The exclusion under section 1202 shall not be taken into account.
(4) Extraordinary dividends and taxable stock dividendsFor purposes only of subpart B (relating to trusts which distribute current income only), there shall be excluded those items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, does not pay or credit to any beneficiary by reason of his determination that such dividends are allocable to corpus under the terms of the governing instrument and applicable local law.
(5) Tax-exempt interestThere shall be included any tax-exempt interest to which section 103 applies, reduced by any amounts which would be deductible in respect of disbursements allocable to such interest but for the provisions of section 265 (relating to disallowance of certain deductions).
(6) Income of foreign trustIn the case of a foreign trust—(A) There shall be included the amounts of gross income from sources without the United States, reduced by any amounts which would be deductible in respect of disbursements allocable to such income but for the provisions of section 265(a)(1) (relating to disallowance of certain deductions).
(B) Gross income from sources within the United States shall be determined without regard to section 894 (relating to income exempt under treaty).
(C) Paragraph (3) shall not apply to a foreign trust. In the case of such a trust, there shall be included gains from the sale or exchange of capital assets, reduced by losses from such sales or exchanges to the extent such losses do not exceed gains from such sales or exchanges.
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