Deceased Spouse’s Carryforward Capital Losses

Question:
My now deceased spouse owned several investments that were sold during the year prior to her passing at substantial capital losses. Can those carryforward capital losses be applied to my tax return or are they lost?

Answer:
If we reference private letter ruling (PLR) 8510053, Revenue Ruling 74-175, and Regulation 1.1212-1(c), a capital loss is considered personal to the taxpayer who incurred the loss and generally cannot be transferred to or used by another taxpayer, including his surviving spouse even if they have consistently filed joint income tax returns. You can’t carryforward these losses to future years and take ownership of them.

However, even though NOLs cannot be carried over and used in future tax years by a surviving spouse or the decedent’s estate, they can be used on the decedent’s final tax return, including the final one filed with a surviving spouse. If a person files joint tax return, the decedent’s NOL would be able to be absorbed by both the decedent’s and the spouse’s income through the end of the calendar year of such death. Therefore, if a transaction could not be generated to fully absorb an NOL by the decedent before death, separately held assets by the spouse may be able to be sold during the year of death in order to absorb the NOL.

Do you have more international tax questions? If so, we can help. Contact us here.

References:
(PLR) 8510053, Revenue Ruling 74-175, and Regulation 1.1212-1(c)

Posted in Personal Tax and tagged , .

Leave a Reply

Your email address will not be published. Required fields are marked *