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PALs and NOLs in Trusts and Estates: Strategies to Maximize Utilization

Calculating Basis in Inherited Assets and Gifts Transferred With PAL Carryovers, Determining Material and Active Participation

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 6, 2023

Recorded event now available

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This webinar will review the rules for deducting passive activity losses (PALs) and net operating losses (NOLs) by decedents, trusts, and estates. The panelist will point out key considerations when gifting assets with PALs or NOLs, demonstrate the participation rules as they apply to trusts and estates, and point out ways to preserve the deductibility of these losses upon transfer or death.

Description

The requirements for deducting PALs under IRC Section 469 are complex. The considerations and calculations increase significantly when a trust or estate holds these losses. A decedent might be entitled to deduct a PAL on the final return but only after adjusting for the basis step-up. A trust's or estate's distribution of a passive interest can trigger a basis step-up for passive loss carryforwards.

Like interests held by members or shareholders, the material and active participation rules come into play when considering deductions of PALs by a trust or estate. The level of participation must be reconsidered anytime an interest is transferred. There are no statutory rules for determining the level of participation in an activity of a trust or estate. Advisers working with pass-through entities and individuals holding potentially passive investments must understand the deductibility of PALs and NOLs by trusts and estates.

Listen as Erin Fukuto, CPA, MST, Partner at Raimondo Pettit Group, explains planning to maximize the use of NOLs and PALs held by or potentially held by a trust or estate.

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Outline

  1. Utilizing PALs and NOLs in trusts and estates
  2. PALs
    1. Decedent's
    2. Gifting assets with PALs
    3. Distributions of pass-through entity interests
    4. Other considerations
  3. NOLs
  4. Examples
  5. Best practices

Benefits

The panelist will cover these and other critical issues:

  • Strategies to maximize utilization of PALs and NOLs in trusts and estates
  • Calculating basis in gifts transferred with passive activity carryovers
  • Determining material and active participation for activities held by a trust or estate
  • When NOLs are and are not deductible by a beneficiary
  • Filing requirements for trusts with passive activities

Faculty

Fukuto, Erin
Erin S. Fukuto, CPA, MST
Partner
Eide Bailly

Ms. Fukuto heads the firm’s estate, gift, and trust services. She specializes in income tax and estate planning...  |  Read More

Timothy D. Pettit, CPA, MST
Timothy D. Pettit, CPA, MST
Partner
Eide Bailly

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 |  Read More

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