capital loss carryover

[oceanlovin'ea]

Husband of sweetest older couple died in 2014. They had HUGE capital losses that they were carrying forward. I knew there would be issues when he died so I had told them to sell stock that would be a gain and use up as much of those losses as possible. The accounts were joint accounts in both names. How do I handle the loss going forward? Page 6-10 in TTB says the estate cannot take losses. It will not be an estate. It will be her return and the accounts are still her accounts. My thoughts were that she could continue to carry her 1/2 of the losses forward.

Does anyone know for sure how to handle this? Even with the sales from last year, the loss is over $250,000.

Linda EA

[Gretel]

I agree with your assessment, if half of the losses were hers, she gets to carry-over 50%.

[Roland Slugg]

Correct. The W's c/o to 2015 is 50% of the unused losses as of the end of 2014.

If the couple followed your advice and sold stocks at a gain in 2014, they could turn right around and repurchase the same stocks if they thought those stocks were good investments going forward. That would not give rise to any wash sales, as the wash sale rules apply only to sales at a loss.

Your advice was good, and although it might not make any difference, it potentially could make a big difference.

[New York Enrolled Agent]

Correct. The W's c/o to 2015 is 50% of the unused losses as of the end of 2014.

Generally I would agree. But the caveat is that the funds used to buy the stocks were from joint funds. Assuming arguendo that only the husband purchased the stock with his own funds then there would be no carryover loss available to the spouse. Look at Rev Ruling 74-175 - see if you agree.

[Roland Slugg]

Hello NYEA. Yes, I was aware of that caveat, although not that particular Rev Rul. I did look it up and read it, however, and IMO it is not exactly on point. Instead it addresses the Q of whether or not an estate can succeed to a decedent's capital loss (and NOL) carryovers. Regs 1.1212-1(c)(1)(iii), however, are precisely on point, and they say the same thing you did.

The OP does say ...

The accounts were joint accounts in both names.

... so I assumed that the possibility of H&W having separate and different c/o's was unlikely.

[oceanlovin'ea]

Thank you

Thanks everyone. I appreciate your thoughts on this subject. I feel confident that I can carry forward 50% of the losses. She will still never use them up. She will probably just leave it where it is and then her kids will inherit the stocks when she dies.

Linda, EA