Dependent Parents Capital Loss Claim

My parents does not have any income. My spouse and I have been claiming them as dependent for few years now in our joint return. Last year in

2008, I invested my money in my parents brokerage account and made a overall loss of $5,400. I deposited my money on their account to do investment.

My question is:

1) Can I claim my dependent parents under my return, if not do they have to file tax return 2) Who can claim capital loss a) If I claim them as dependent can I claim that loss and have deduction in my tax b) If they have to file their return how can they claim loss deduction if they don't have any income c) any other option

Thanks for help in advance

Mehta

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Reply to
saurinmehta
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Bearing in mind that I have no particular expertise in tax matters, here is my take on your questions:

When you invested "your" money in your parents brokerage account, I would think that it then became a gift to your parents, and it effectively became "their" money. I am curious as to why you chose to do the investment in their account rather than your own. Did you intend to give them the money?

You will be able to claim your parents as dependents as long as they meet the requirements. There are support and income tests to this, but I don't recall the precise numbers for income. That doesn't seem to be relevant at the moment, since you state your parents don't have any income.

If the money is in their account, with their tax ID number, then it is their money and their loss. So only they can claim the loss.

No. It appears that the loss belongs to your parents since it comes from their investment account.

They will have to fill out a schedule D and with no offsetting income (this year), they will be able to carry forward the loss to future years where it can offset capital gains and up to $3,000 per year of other income.

Not that I am aware of. The loss belongs to your parents and not to you, so they are the ones who get to claim it.

Now, some of this may change depending on specific details of the arrangement of the investment account. But that would require a lot more information than we have available here.

Reply to
Tom Russ

It is possible as long as they don't file jointly. There are 3 other tests that have to be met also (you already meet the relationship test).

It was THEIR account. You gifted them the money and they lost it.

No.

$3,000.00

No.

Reply to
D. Stussy

Let me tell you what this "sounds" like, as I have seen it often in the past. (This is not to say, that what follows was your intent.) A taxpayer has a close relative that has little to no income and pays no taxes. The taxpayer to evade paying tax at his/her own rate, uses an account in the relative's name to make investments that throw off income (interest, dividends, capital gains) which is then taxed at a lower rate or even not taxed. The gains are then given to the taxpayer who is managing the account. This use to be done with children before the IRS over time tightened the rules as to how children's income gets taxed.

The reason I said it "sounds' like the above is that you said you invested your money in their account. You didn't say, that you made them a gift and then managed their account. So let me ask you this:

What was your intent if the account had income? Where did you intend to report that income?

Reply to
Alan

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