What happens with a 1040 filer's capital loss carryover when the taxpayer dies? To simplify the question - - If there is only one heir, does the heir receive this as a benefit for use in a future tax year on his 1040?
No, the carryover losses can only be applied to the decedent's personal tax return - they do not transfer.
Rev. Rul. 74-175:
A capital loss and a net operating loss from business operations sustained by a decedent during his last taxable year are deductible only on the final return filed in his behalf; such losses are not deductible by his estate.
So on the final personal return after the taxpayer's death, I would understand a capital loss carry-over (such as from sale of stock at a loss in previous years) would be taken up to the maximum allowed for a living person. (Income taxes due on that final return would be paid by the estate - by its administrator.) Is the balance of the loss carry-over just lost forever? After the death the estate continues to operate with collection of revenues that continue to come in. There are taxes due on it. Can the estate somehow show this capital loss carry-over on a K-1 and/or 1041?
The balance is lost forever, per Rev Rul 74-175 as noted above; the losses are not deductible by the estate.
That's an inheritance tax in another form. The taxpayer is denied ability to take off all his losses in the year of the loss. Then when he dies it all gets gobbled up and no one is able to report the remainder of the loss, even in another year. (If on the other hand a stock transaction had been a gain, instead of a loss, the taxpayer would be required to report all of it in the year of the gain.)