Instructions For Form 5227 - 2016 (Page 6 of 20) in pdf

Section E—Deductions Allocable to Income

28% long-term capital gain class. This class consists of

collectibles gains and losses and the taxable gain (but not

Categories (Section 664 trust only)

more than the section 1202 exclusion) on the sale or

Deductions are allocated as follows.

exchange of qualified small business stock. Enter these

1. Allowable deductions directly attributable to one or

gains or losses on line 12.

more classes of income items (that is, interest, dividends, or

Section 1250 long-term capital gain class. This class

rents) or corpus are allocated to such income classes or

consists of unrecaptured section 1250 gain (generally the

corpus.

part of real estate capital gain attributable to depreciation) on

sales, exchanges, etc. of assets held more than 1 year.

2. Allowable deductions not allocated under (1) above

Undistributed, unrecaptured section 1250 gain on sales,

are allocated on the basis of gross income after directly

exchanges, etc. after May 6, 1997, is included in this class.

attributable deductions, to the extent of such income.

Enter this gain on line 11.

3. Deductions not allocated under either (1) or (2) above

All other long-term capital gain class. This class

may be allocated in any manner.

consists of all other gains or losses from sales, exchanges,

and conversions (including installment payments received) of

Add the deductions that were allocated to all the classes

assets held more than 12 months.

of income items within each category and enter the amount

on the appropriate line. (Note: Any deduction allocated to

Section C—Nontaxable Income

corpus isn't shown on any line in Section E.)

In this section, include other income that isn't included in

For a discussion on the allocation of deductions to

Section A or B. This section includes income excluded under

tax-exempt income, see Allocation of Deductions for

Subtitle A, Chapter 1, Subchapter B, Part III of the Internal

Tax-Exempt Income in the Instructions for Form 1041.

Revenue Code, such as interest on state and municipal

Part II. Schedule of Distributable

bonds.

Income (Section 664 trust only)

Section D—Deductions

Report the income (both current and cumulative

For Section 664 Trusts

undistributed income) of the trust for purposes of determining

Include all allowable deductions and any expense that would

the character of distributions in three categories:

be allowable but for the fact that it must be allocated to

1. Ordinary income,

tax-exempt income. No deduction is ever allowed for:

2. Capital gains and losses, and

The personal exemption under section 642(b),

Charitable contributions under section 642(c),

3. Nontaxable income.

Net operating losses under section 642(d),

A loss in any one of the three categories may not be used

Income distribution deductions under section 661,

to reduce a gain in any other category. For example, a capital

Capital loss carryforwards under section 1212,

loss may not be used to reduce ordinary income. However, a

Federal income taxes, or

loss in any one category may be used to reduce

Federal excise taxes under Chapter 42.

undistributed gain for earlier years within that same category,

and any excess may be carried forward to reduce gain in

Any expense that isn't deductible in determining taxable

future years within that same category.

income (or not otherwise deductible but for the fact that it

must be allocated to nontaxable income) must be allocated

For information on recordkeeping for long-term capital

to corpus.

gains or ordinary income, see the Capital Gains Distribution

Worksheet or the Ordinary Income Distribution Worksheet,

Attached statement. List any other allowable deduction (or

later.

any expense that would be an allowable deduction but for the

fact that it must be allocated to tax-exempt income) that isn't

Net Investment Income (NII). Beginning in 2013,

included on lines 17 through 20 and the amount of the

charitable remainder trusts must begin tracking Excluded

deduction. Total the amounts listed and enter the total on

Income and net investment income (NII) received and

line 21.

distributed. For 2013 and later years, columns (a), (b), and

For Split-Interest Trusts Other Than Section 664

Income.

Trusts

The term Excluded Income is income received (or losses

incurred) by the charitable remainder trust not taken into

Include all expenses attributable to gross income that are

account in computing NII. For charitable remainder trusts

deductible for the tax year.

(CRTs) in existence before 2013, all undistributed income as

Attached statement. List any other deductible expense that

of the end of 2012 is Excluded Income. For 2013 and later

is attributable to the gross income of the trust and isn't

years, the CRT must determine whether the items of income,

included on lines 17 through 20 and line 23 and show the

gain, loss, and deduction reported on sections A through D of

amount of the deduction. Total the amounts listed and enter

Part I constitute NII or Excluded Income.

the total on line 21.

Line 27. Enter the amounts of undistributed Excluded

Income and undistributed accumulated NII from post-2012

Line 23. Charitable Deduction

tax years.

Enter the amount of any charitable deduction or other

Line 28. Allocate the items of income or loss from the

deduction taken under section 642(c) for the tax year.

current year between Excluded Income and NII.

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Instructions for Form 5227

Instructions For Form 5227 - 2016 Page 6

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