Instructions For Form 5227 - 2016 Page 14
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20(d) through (f) using Code H in Box 14 of the Schedule K-1
Additional Rules for Capital Gains and Losses. The
(Form 1041).
following charts highlight the difference in netting and
If the amount in column (j) is less than the sum of the
ordering rules for capital gains and losses depending on
amounts in columns (d) through (f), enter the difference as a
whether the CRT elects to use the Simplified Net Investment
negative amount under Code H in Box 14 of the
Income Calculation (SNIIC) method. In general, if the CRT
Schedule K-1 (Form 1041).
elects to use the SNIIC method, the netting and ordering
If the amount in column (j) is greater than the sum of the
rules will be essentially the same as those applicable before
amounts in columns (d) through (f), enter the difference as a
the 2013 tax year; every dollar distributed will carry out the
positive amount under Code H in Box 14 of the Schedule K-1
CRT’s NII, to the extent of the CRT’s accumulated NII,
(Form 1041).
without regard to the class or category of that distribution for
regular tax purposes. If the CRT uses the section 664
Ordering Rules for Ordinary Income. Ordinary income is
method for calculating NII and Excluded Income, the netting
composed of two classes for purposes of characterizing and
and ordering rules are expanded to take into account
ordering distributions: (a) qualified dividends, and (b) all
additional classes within the ordinary income and capital gain
other ordinary income. If the trust has both classes of
categories that are created due to the imposition of an
ordinary income, distributions are treated as made first from
additional 3.8% tax on NII but not on Excluded Income.
all the other ordinary income class, and second from the
qualified dividends class.
Netting Rules. Gains and losses are netted within each
class to arrive at a net gain or loss for that class. After you net
The following chart highlights the difference in ordering
within a class, the following additional netting rules apply to
rules depending on whether the CRT elects to use the
the capital gains category.
Simplified Net Investment Income Calculation (SNIIC)
method:
Ordering Rules for Ordinary Income
Section 664 Method
SNIIC Election Method
1. Distributions of all other ordinary income:
First, ordinary income that is NII
(43.4% rate), then
All ordinary income class
Ordinary income that is Excluded
Income (39.6% rate)
2. Distributions from the qualified dividend class:
First, qualified dividends that are NII
(23.8% rate), then
All qualified dividends
Qualified dividends that are Excluded
Income (20% rate)
Netting Rules
Section 664 Method
SNIIC Election Method
1.
Among the long-term capital gain and loss classes:
(a)
A net loss from the 28% long-term capital gain class that is NII (31.8% rate) reduces net gains in the following order:
First, gain from the section 1250 long-term capital gain class that is NII (28.8% rate), then
Net gain from the 28% long-term capital gain class that is Excluded Income (28% rate), then
Gain from the section 1250 long-term capital gain class that is Excluded Income (25% rate), then
Not Applicable
Net gain from all the other long-term capital gain class that is NII (23.8% rate), and finally
Net gain from all the other long-term capital gain class that is Excluded Income (20% rate).
(b)
A net loss from the 28% long-term capital gain class that is Excluded Income (28% rate) reduces net gains in the following order:
First, net gain from the 28% long-term capital gain class that is NII (31.8% rate), then
First, gain from the
section 1250 long-term
Gain from the section 1250 long-term capital gain class that is NII (28.8% rate), then
capital gain class, then
Gain from the section 1250 long-term capital gain class that is Excluded Income (25% rate), then
Net gain from all the other
Net gain from all the other long-term capital gain class that is NII (23.8% rate), and finally
long-term capital gain
class.
Net gain from all the other long-term capital gain class that is Excluded Income (20% rate).
(c)
A net loss from all the other long-term capital gain class that is NII (23.8% rate) reduces net gains in the following order:
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Instructions for Form 5227
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