Contents

CHARITABLE REMAINDER TRUSTS• Second, the amounts are treated as capital gain, to the extent of the charitableremainder trust’s undistributed capital gains. 300If, in any tax year of a CRT, the trust has both undistributed shorttermcapital gain and undistributed long-term capital gain, the shorttermcapital gain must be deemed distributed prior to any long-termcapital gain. 301If a CRT has capital losses in excess of capital gains for any tax year,any excess of the net short-term capital loss over the net long-term capitalgain for the year must be a short-term capital loss in the succeedingtax year, and any excess of the net long-term capital loss over the netshort-term capital gain for the year must be a long-term capital loss inthe succeeding tax year. 302If a CRT has capital gains in excess of capital losses for any tax year,any excess of the net short-term capital gain over the net long-termcapital loss for the year must be, to the extent not deemed distributed,a short-term capital gain in the succeeding tax year, and any excess ofthe net long-term capital gain over the net short-term capital loss forthe year must be, to the extent not deemed distributed, a long-termcapital gain in the succeeding tax year. 303• Third, the amounts are treated as other income to the extent of the sum ofthe trust’s other income for the taxable year and its undistributed otherincome for prior years. A loss in this category for the current year must beused to reduce undistributed income in this category for prior years, andany excess must be carried forward indefinitely to reduce this income forfuture years. 304• Finally, the amounts are treated as a distribution of trust corpus. For thesepurposes, the term corpus means the net fair market value of the trust’sassets less the total undistributed income (but not loss) in each of theabove categories. 305The character of a CRT’s income is determined at the time the income is realizedby the trust. Legislative changes in 2003 caused qualified dividend incometo be taxed at the rates applicable to long-term capital gains, 306 causing differenttypes of ordinary income to be subject to different federal income tax rates. 307300 IRC § 664(b)(2); Reg. § 1.664-1(d)(1)(i)(b). Undistributed capital gains of a charitable remainder trust are determinedon a cumulative net basis without regard to the capital loss carrybacks and carryover rules (IRC §1212). IRC § 664(b)(2); Reg. § 1.664-1(d)(1)(i)(b).301 Reg. § 1.664-1(d)(1)(i)(b)(1).302 Reg. § 1.664-1(d)(1)(i)(b)(2).303 Reg. § 1.664-1(d)(1)(i)(b)(3).304 IRC § 664(b)(3); Reg. § 1.664-1(d)(1)(i)(c).305 IRC § 664(b)(4); Reg. § 1.664-1(d)(1)(i)(d).306 See § 12.5(b).307 See § 2.15, text accompanied by note 69. 454