Decedent's capital loss

[NSNM]

MFJ taxpayers had Schedule D capital losses (ST $43800 and LT $124200) carried over from 2009 to 2010.

During 2010 Tax filer died leaving surviving spouse.

On the final 1040 (2010) return $3000 capital loss was used, leaving unused capital loss of $165000.

Fiduciary return (Form 1041) is due for the fiscal year 2010-11.

1) Is it possible for surviving spouse to take all unused loss of $165000 carried over to year 2011. They held their investment accounts separately and about $110000 loss belonged to the decedent.

2) Is it possible to use decedent's capital loss on the Fiduciary Return (Form 1041)

3) Has that decedent's loss of $110000 lost forever with his death.

Appreciate reader's comments. Thank you.

[taxea]

from Pub 17
Decedent's capital loss. A capital loss sustained by a decedent during his or her last tax year (or carried over to that year from an earlier year) can be deducted only on the final income tax return filed for the decedent. The capital loss limits discussed earlier still apply in this situation. The decedent's estate cannot deduct any of the loss or carry it over to following years.


Also research Pub 550 and 559

[JON]

He

loses HIS carryover. She keeps HER carryover - you said seperate accounts. Joint accounts split 50/50 for carryover after death.

[NSNM]

Capital loss deduction

Thank you TAXEA and JON for clarifying decedent's unallowed capital losses. $110000 loss was so huge that taxpayers could not deduct anyway.

Does any long time tax return preparers know since how long the limit of $3000 loss deduction (Code Sec 1211) has been on the IRS code ?

Kind of curious to know why that limit has NOT been raised over the years, apart from congress does not want to allow increaed deduction for taxpayers for loss of tax revenue.

What is the reasonable basis behind NOT increasing the loss deduction limit ($3000) when most of the deductions, exemptions, credits have changed upwards especially salaries of congress members.

[FEDUKE404]

I've wondered the same thing!

......What is the reasonable basis behind NOT increasing the loss deduction limit ($3000) when most of the deductions, exemptions, credits have changed upwards especially salaries of congress members.

I've been working on taxes for way too many years, and recall the $3k max capital loss on Sch D being around for all of those years.

My guess is the only reason it has not been changed must have something to do with "rich people" or something along that line.

If a senior citizen incurs a large Sch D tax loss, and otherwise has little taxable income, the loss just withers away unless somehow a large capital gain might somehow appear.

It's in the same general category of a single person, age 64, who has never collected 1¢ of Social Security benefits and gets flattened by an 18-wheeler. All of the money paid into the Soc Sec system over the years, as well as any benefits, simply vanishes into thin air.

FE

[S T]

2009 Article in AICPA

Found this article regarding the $3,000 limit published in 2009 - The $3,000 cap loss has bee in effect since 1978.

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2009/Tax/LossLimitation.jsp

If you google there is more

Sandy

[Lion]

Losses

Most personal losses give us no tax benefits. However, we can net capital losses against capital gains on Schedule D. And, use $3,000 of the excess loss against all income each year. Not bad.

All balanced out well for my clients until the sustained down market means that my older clients won't live long enough to use up all their losses.

With passive activities, such as those oil K-1s, we can NOT net a passive loss in one activity against a gain in another. And, we can't take tax losses for our primary residence nor personal property.

[appelman]

Off topic, but...

I must disagree with Lion's last paragraph. Passive losses (including suspended ones) are netted against passive gains, regardless of the activities from which either originated.

[WhiteOleander]

I must disagree with Lion's last paragraph. Passive losses (including suspended ones) are netted against passive gains, regardless of the activities from which either originated.

Except for PTP's

[FEDUKE404]

The gorilla in the tax room

Except for PTP's

Agreed, and as many people have learned the hard way with the advent of Form 8283 and PTPs/MLPs, that is a very large "EXCEPT" !!

FE

[Lion]

K-1s

Yep, all those oil exploration PTPs seem to be very popular with my clients' brokers and their trusts' brokers and bankers who have strict regulations on what investments they can make. When a client has 6-12 K-1s and each has 6-12 activities, that's a lot of data entry for not much in the way of current deductions but current income. You have to read all the information carefully to spot an activity or two which might claim to be non-passive; most remind you that their activities can NOT be netted against each other. When one of my clients complained about my tax prep fee, I showed him how many pages were due to his investment choices.

[appelman]

Live and learn!

Always another wrinkle. None of my clients are in PTP's, but there's bound to be one someday.

[FEDUKE404]

They ARE out there!

Always another wrinkle. None of my clients are in PTP's, but there's bound to be one someday.

You've led a sheltered life! Many stockbrokers push these "investments" like crazy...income sounds good and many folks are also desperate for more income. The "fine print" often gets overlooked.

A couple of years ago I received the tax paperwork for a long-time client who is in his mid-80s. Among his investment papers was a new K-1 (a what?!?) and, of course, it had the "magic box" checked.

He is quite sharp intellectually but had no idea what his broker had found for him nor the associated tax rules for PTPs. His losses existed only in my computer until the following year, when he and his broker "reached an understanding" (and he transferred all investments!) with the sale of the PTP and the ability to take/use the cumulative losses. My tax fees had to go up significantly for the work involved, but the client fortunately understood what he was up against.

FE

[Gary2]

For a laugh that requires understanding PTPs, see this cute cartoon which I found from this thread by JohnH. (Actually, the video part is irrelevant; all the content is in the audio.)

[FEDUKE404]

Video laugh

Very nice!

Hopefully someone will come up with a comparable video for the upcoming tax season to include the Sch D shenanigans/preparer costs associated with "a few stock sales."

Thanks for the laugh!

FE