Child/Dependent capital loss

[RobGB]

Hi,
I'm new to this message board so please excuse the question if it has been asked before.

Client has a child with $4K capital loss and the child is only 12, The loss should carry forward till something can be applied against it - right?

In the mean time does the child/dependent have to file a return? I'm thinking not, but don't know.

Finally the parents - do they have any reporting requirements on the loss?

Many thanks in advance.

[Brad Imsdahl]

The parents cannot elect to report it on their return because it is a capital loss reported on a 1099-B. Only interest, dividends, and capital gain distributions can go on the parent's return.

Although a tax return is not required, I would file one anyway showing the loss, and then file one each year showing the carry forward loss until it is eventually used up.

[DaveO]

I posed this very question to an IRS Auditor

He was uncertain and polled the other Auditors he worked with. Most of them felt is was un-necessary to file the return. Most of them also felt it was a good idea to do so. I think it was 8-2 in favor of filing. I always file and remind the client to remember the loss as it may be several years before the loss can be used and someone else may be doing the return.

[gkaiseril]

Pub 929

You should check IRS Pub 929 for the filing requirements for the dependent. It explains how to report the child's income that is unearned, earned and both earned and unearned. In general a child under 18 with unearned income over $1,700.00 has to have that unearned income taxed at the parent's higher rate. This policy is designed to prevent the parents from transferring significant amounts of their investment income to their children. The publication also explains when a tax return for the child should be filed. Since the child does not meet the income requirements for filing a return no return needs to be filed per the publication. It appears the capital loss would carry forward and could be used against future unearned income..