My widowed mother in law died in 2007 and when I filed her decedent's final return back in April of 2008, there was about $20,000 of capital loss I had to "leave on the table"-- only being able to take $3000 of it.
Is there a way to take any part of that loss when I file the initial and final estate tax return- Form 1041-- for 2008 to offset interest income from the executor's bank account?
TIA...
No. That's why it's a mistake, especially for the elderly, to hold on to investment assets that have experienced large declines in market value. Sell 'em, use the recognized loss to offset income, then buy back in (if you want to) after the wash sale period has elapsed.
No. Carryover losses expire with the decedent, and if not used with the final tax return, are gone forever. They DO NOT become part of the estate.
Thanks all-- that's what I was afraid of...
If an elderly person has a net loss in their investment portfolio and if you expect the market to more or less trend sideways (or down) over the next few years - a period exceeding the life expectancy of the elderly person - it doesn't seem like the sell 'em/buy them back maneuver does much more than enrich the broker. The elderly person would get very little benefit of the realized capital loss in their remaining years and the basis of the securities to beneficiaries is still going to be FMV at date of death.
Am I missing something here?
Tom Young
Your scenario seems to be a rather unusual one in which a taxpayer with a large unrealized investment loss is also paying little or no tax on ordinary income. I assume the more usual case in which the tax benefits of recognizing the loss will exceed any transaction costs of the sale. After that, buying back an asset that's expected to "trend sideways" for several years would make little investment sense, tax considerations aside.
Needless to say, the time for such a sale is _before_ the taxpayer is clearly on the way out, just as the time for estate planning is before the first spouse dies.
As an added tidbit, which I did not see mentioned, but which I have seen more than a few times -
Many posters on this board, myself included from time to time talk about "stepped up basis" on the inheritence of an item. What we're really talking about is a basis adjustment which may be up, but in this market could just as easily be DOWN.
Upon death, the beneficiary inherits items - including investments - at the LOWER of their cost or Fiar Market Value. So if grandma dies with a portfolio that has a cost basis of $1M and a FMV of $200K, the beneficiary's inherited basis is $200K.
Sometimes folks get all caught up in what to do with the portfolio to maximize the available losses. I've seen people hold on to investments that have huge losses built in because they know Gramps will never live long enough to use up the losses and they don't want the losses to die with him. But they miss the fact that the losses always die with the owner - one way or the other.
Gene E. Utterback, EA, RFC, ABA
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.