Allocating expenses to capital gains (1041)

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You can directly or indirectly allocate expenses to capital gains.

To directly allocate expenses to capital gains, complete the following steps.

  1. Click the Deductions folder.
  2. On Screen Deduct, open the statement dialog for the applicable expense.
  3. In the Income Type field, enter code STG to allocate the expense directly to short-term capital gains, LTG to allocate the expense directly to long-term capital gains, or 1231 to allocate the expense directly to Section 1231 gains.
  4. Enter the expense amount on the same line as the code.
  5. To allocate state estimated tax payments, enter the same code (STG, LTG, or 1231) in the Allocate to income type field on Screen StPmt.

Indirect expenses are not automatically allocated to capital gains. To indirectly allocate expenses to capital gains, complete the following steps.

  1. Click the Deductions folder.
  2. On Screen Deduct, open the statement dialog for the applicable expense and either leave the Income Type field blank to indirectly allocate the expense to all income types or enter code TAX in the Income Type field to allocate to taxable income types only.
  3. Enter the expense amount on the same line as the code.
  4. Click the Allocation folder, and on Screen Allocate in the Exclude Indirect Expense section, delete X from the Short-term gains, Long-term gains, and/or Section 1231 gains fields, as applicable.

    Note: If the Short-term gains, Long-term gains, or Section 1231 gains field on Screen Allocate in the Exclude Indirect Expense section is blank, indirect expenses allocate to capital gains only to the extent that the gains are included in distributable net income (DNI). By default, the amount of capital gains included in DNI is the total beneficiary amount from Schedule D, Part III, column (1).

    • To include all capital gains in DNI when all are not distributed to beneficiaries, enter X in the Includible in distributable net income per trust document: 100% of capital gains field on Screen Dist in the Allocation folder.
    • To include a portion of capital gains in DNI other than 100 percent of the amount distributed to beneficiaries, enter the amount in the Includible in distributable net income per trust document: Short-term capital gain (Force), Includible in distributable net income per trust document: Section 1231 gain (Force), and/or Includible in distributable net income per trust document: Other long-term capital gain (Force) fields on Screen Dist in the Allocation folder.

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