$3000 capital loss carryover

[Burke]

My question: Common thought in this thread is the losses are gone once he dies....no transfer of the loss to his estate or heirs. Generally, I agree with that. However, I assume the losses would transfer to his spouse if she outlives him provided the investment accounts involved were in co-ownership form. And, she would be limited to $1,500 a year. Does that sound reasonable to the community or am I missing something?

Thanks in advance for any insight.

The $1,500 limitation is for MFS. She will get half the gross capital loss if they were jointly owned, limited to net $3,000 per year if filing single, HOH or QW.

[Roland Slugg]

Huh???

She will get half the gross capital loss if they were jointly owned.

Actually, the entire capital loss carryover continues on to the surviving spouse's returns. None is lost. In fact if she remarries, her new spouse benefits from it on a joint return. And if she then dies before H2 does, he continues on with "her" old capital loss carryover, and so on, and so on.

I think a more interesting question is: What happens to a capital loss carryover when a couple divorces?

[S T]

More Info

There was some discussion on this a few months back.

Here is the link http://www.thetaxbook.com/forums/showthread.php?t=7534

Sandy

[Davc]

Actually, the entire capital loss carryover continues on to the surviving spouse's returns. None is lost. In fact if she remarries, her new spouse benefits from it on a joint return. And if she then dies before H2 does, he continues on with "her" old capital loss carryover, and so on, and so on.

Disagree. From the NY CPA site.

"The decedent’s final income tax return may reflect some tax carryovers. The decedent’s capital loss carryover terminates at death. The sources of the carryover must be traced and then split between both taxpayers on a joint return. The survivor may continue to use her own share of the joint capital loss carryover. All capital gains of both spouses (including the postdeath capital gains of the survivor) are reported on the joint income tax return in the year of death. The surviving spouse should consider selling appreciated assets to use as much of the decedent’s capital loss carryover as possible on the joint tax return and to avoid the total loss of the carryover."

http://www.nysscpa.org/cpajournal/2003/0303/dept/d036303.htm

I have seen your method disallowed on audit. (Not a return I prepared.)

[les grans]

I can quite easily imagine a situation where the "joint" carryover capital losses of a married couple are *not* 50-50, and then, when one of them dies, the available [net] carryover for the surviving spouse won't be half of the remaining loss. Figuring out how much of a "joint" capital loss carryover belongs to the surviving spouse might be a real pain in the brain... A major calculation involving getting back into the married couple's prior years' - heck, prior decades' - tax returns.

Oh, it's even worse than that: on the prior years' joint tax returns, it probably doesn't show which stock was sold, his, hers, or theirs... Imagine, if you will, a situation where husband and wife own some shares of XYZ jointly, as well as some "his" and some "hers." On the tax return Schedule it will say only "sold 12 shares of XYZ" and if you want to determine rigorously whose capital loss it was, you'll have to go all the way back to the trades themselves - not just what's on the tax return - to determine if it was "his" "hers" or "theirs" that was sold, back in 1987, for example... And then you've got to do the same thing every year since then, to be sure you've used up the correct part of the carryover loss - his, hers, or theirs - when anything is sold, at a gain, in a later year, absorbing some of the capital loss.

Does anybody agree with me on this?

[Roland Slugg]

Disagree.

This is news to me. I've carried the entire capital loss carryover to a surviving spouse's return a dozen times over the years, and none was ever audited or changed via correspondence. Maybe all those clients were just lucky. It has always been my understanding that the "taxpayer" continued on when there was a surviving spouse, and that no allocation of an unused loss was necessary when one spouse died.

The cited article says an allocation must be made, and that the portion allocable to the deceased spouse may not be carried over to the surviving spouse's return in the following year. The article, however, offers no citations to back up that statement.

Regs §1.1212-1 does address the joint return to separate returns issue, and vice versa, but says nothing about the disallowance of a portion of the unused loss in the case of a death.

I therefore remain unconvinced that part of a capital loss fails to carry over to the return of a surviving spouse, but I shall watch with interest for authoritative citations that prove me wrong.

[Gene V]

See if Revenue Ruling 74-175 gives the answer.

http://www.taxlinks.com/rulings/1974/revrul74-175.htm

[FEDUKE404]

Here we go again....

... I've carried the entire capital loss carryover to a surviving spouse's return a dozen times over the years, and none was ever audited or changed via correspondence. Maybe all those clients were just lucky. It has always been my understanding that the "taxpayer" continued on when there was a surviving spouse, and that no allocation of an unused loss was necessary when one spouse died.

Everything I have read indicates that some consideration/adjustment needs to be made in a capital loss carryover from MFJ to a survivor's tax return, i.e. it cannot automatically just "slide over" from joint to surviving spouse. Conceptually it is in the same general area as to why a surviving spouse who owned a stock jointly with the deceased spouse cannot use 100% of the stepped up (value at death) cost basis.

I agree it can be a nightmare to determine some of these numbers, especially for stocks held many years and/or for "old" capital loss carryforwards. But to just transfer everything to the surviving spouse and hope the "never been audited" streak continues does not seem prudent.

FE

[les grans]

As for myself, I often exercise my own "left turn on red after full stop" privilege, and I've never gotten a ticket for it so I'll insist that it's ok and continue to do it...

Just spoofin' of course; I would *never* turn left on red when there's a police car right there at the light... :-))

I do wonder, though, where I got the very strong conviction that the widow doesn't get to use the dead husband's capital losses...

[Davc]

From the ruling:

In the absence of any express statutory language, only the taxpayer who sustains a loss is entitled to take the deduction. See Calvin v. United States, 354 F. 2d 202 (10th Cir. 1965). Therefore, the business loss and the capital loss sustained by the decedent for the period ending with the date of his death are deductible only on his final income tax return. Thus, no part of such net operating loss or capital loss is deductible by the decedent's estate or carried over to subsequent years. However, a net operating loss carryback resulting from a net business loss on the decedent's final return may be carried back to prior years as provided for in section 172 of the Code.