F. Treatment of Capital Losses

(1) For purposes of computing net investment income, capital losses from the sale or

other disposition of property may be subtracted from capital gains during the same taxable year but only to the extent of such gains. See Section 4940(c)(4)(C). If capital losses exceed capital gains in a taxable year:

a. The excess may not be deducted from gross investment income under

Section 4940(c)(3) in any taxable year;

b. Nor may such excess be used to reduce gains in either prior or future taxable

years, regardless of whether the foundation is a corporation or a trust. See

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Treas. Reg. 53.4940-1(f)(3) and the examples in Treas. Reg. 53.4940-1(f)(4), illustrating the rules on capital gains and losses in computing net investment income.