Discussion Archives:Capital Loss - Death of Spouse

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Discussion Forum Index --> Advanced Tax Questions --> Capital Loss - Death of Spouse


Discussion Forum Index --> Tax Questions --> Capital Loss - Death of Spouse

Msmith7305 (talk|edits) said:

11 March 2010
Need some help and guidance, please. Here are the facts:
  1. Husband and wife file joint tax return in 2008
  2. Realize LTCL of $23,000 in 2008.
  3. $20,000 LTCL carryover to 2009.
  4. Husband dies January 31, 2009.
  5. At time of death there have been no capital gains or losses.
  6. Wife realizes LTCG on September 30, 2009 of $20,000.
  7. Joint return is filed for 2009.
  8. All property at all times was jointly owned.

Can the wife utilize all 20K of the LTCL carryover from 2008 on the jointly filed 2009 return?

I have had a long discussion with other CPAs and done a good amount of research trying to find a definitive answer. If this had been an individual with an unused 20K loss at death, the answer would have been easy. 3K on his final return and no carryover available for anyone. But on JOINT return, does the surviving spouse get to utilize "her" 10K carryover from 2008 AND deceased spouse's 10K carryover to fully offset the 20K gain she realized after his date of death?

I have found cites regarding what happens when a cap loss carryover remains at the end of 2009, but nothing that directly addresses the issue of whether the surviving spouse may utilize the deceased's cap loss against gains generated after his death.

Anyone have one?

Thanks!

Smokeytax (talk|edits) said:

11 March 2010
MSmith7305 - sorry I don't have time to look it up & find the reference, but it's my understanding that on the final joint return, all of the losses are netted, regardless of whether they occurred before or after death.

Msmith7305 (talk|edits) said:

11 March 2010
Smokeytax -

I agree, but how is the netting of gains after death reconciled with the language of Rev Ruling 74-175 which states that "in the absence of any express statutory language, only the taxpayer who sustains a loss is entitled to take the deduction"?

Larry0434 (talk|edits) said:

11 March 2010
A surviving spouse is allowed to file a married filing joint return for two years following the death their partner. Capital losses would be claimed on that return because it is not eligible to be included within the estate.

Larry0434 (talk|edits) said:

11 March 2010
For purposes of section 21 (relating to change in rates during a taxable year), section 443 (relating to returns for a period of less than 12 months), and section 7851(a)(1)(A) (relating to the applicability of certain provisions of the Internal Revenue Code of 1954 and the Internal Revenue Code of 1939), where the husband and wife have different taxable years because of death of either spouse, the joint return shall be treated as if the taxable years of both ended on the date of the closing of the surviving spouse's taxable year. Thus, in cases where the Internal Revenue Code of 1939 otherwise would apply to the taxable year of the decedent spouse and the Internal Revenue Code of 1954 would apply to the taxable year of the surviving spouse, this provision makes the Internal Revenue Code of 1954 applicable to the taxable years of both spouses if a joint return is filed. [Reg. ยง1.6013-3.]

According to IRC 1.6013-3, when the decedent's tax year is shorter than the surviving spouse's tax year, the IRS will use the surviving spouse's tax year. As a result, the decedent's LTCL may be used to offset the surviving spouse's LTCG in the year of death.

Ddoshan (talk|edits) said:

11 March 2010
Maybe things are more complicated than I understand but if all the property is jointly owned I don't see why there would be any problems.

Okie1tax (talk|edits) said:

11 March 2010
My understanding is that a spouse MAY be allowed to file jointly for the year of death, provided the executer approves. A surviving spouse may file as Qualified Widow/Widower for two years following the death of a spouse IF there is a qualifying child.

Kevinh5 (talk|edits) said:

11 March 2010
Larry, where on earth did you get the idea that a surviving spouse can continue to file a joint return FOR TWO YEARS with her decesased spouse? The year of death, yes. The following year, no.

Tax Writer (talk|edits) said:

11 March 2010
Agree with Kevin. Seriously... MFJ is only available as a filing status in the year of death. QW subsequent 2 years only if the t/p has a qualifying person. Come on now.

Tax Writer

Larry0434 (talk|edits) said:

11 March 2010
IRC 2(a)

Irregardless, husband passes away in 2009. LTCG is in 2009.

Tax Writer (talk|edits) said:

11 March 2010
Larry, IRC section 2(a) is the definition of a "surviving spouse" for tax purposes. It does not say anything about filing status.

However, a quick look at Publication 17 will show you that:

"If your spouse died during the year, you are considered married for the whole year for filing status purposes... The year of death is the last year for which you can file jointly with your deceased spouse."


Tax Writer

Dennis (talk|edits) said:

11 March 2010
The election to file a joint return with surviving spouse belongs to the executor.

Doug M (talk|edits) said:

12 March 2010
Dennis and/or Okie:

What happens if there is no probated estate, everything was held in joint title on DOD. Hence, no letters testamentary are issued and no executor. Lets just for sake of argument state no will.

Okie1tax (talk|edits) said:

12 March 2010
Usually, the surviving spouse IS the executor. But, not always. My experience was where there were step-children and one of those was named the executor in the will. Bad step-mother syndrome? whatever. Went down to 4-14 before he gave in because of the difference in taxes. Was not trying to scare you, just wanted to remind everyone that the executor makes the decision when an executor IS named or appointed.

Doug M (talk|edits) said:

12 March 2010
Learn something new every day (and this time of year, many things). I will admit, 31+ years, never knew that is was the executors decision to MFJ. My tax service prints over the top of the deceased spouse signature area "Filing as surviving spouse". Seems that the executor should not be done as the executor should sign the 1040?

Larry0434 (talk|edits) said:

12 March 2010
Doug M

Your software is complying with the IRS regulations.

Harry Boscoe (talk|edits) said:

12 March 2010
"Irregardless"?

Tax Writer (talk|edits) said:

12 March 2010
Yes, Doug-- it is usually the surviving spouse that takes care of things, but the executor is the one with the final say. Like Okie, I have also had a case where the wife died and one of the step-children was named as executor-- and she hated the husband; so she refused to release any information (they had physically separated but never divorced). It was a very nasty family squabble.

The executor is also the one who can change from a previously filed "MFJ" return to an "MFS" return, stripping the joint election from the surviving spouse. It is the only situation where the IRS will accept an amended return that changes filing status to "MFS" from "MFJ" after the filing deadline.

Tax Writer

Larry0434 (talk|edits) said:

12 March 2010
See IRC 1.6013-1 for specific direction.

Msmith7305 (talk|edits) said:

12 March 2010
Would like to thank all for the input, particularly Larry0434.

RoyDaleOne (talk|edits) said:

13 March 2010
Any guess what I though the question was going to be?

Client wants to take capital loss for the death of the spouse.

Sorry.

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