I know the capital loss carryover is $3k a year, but if i die, can I use the rest of it that year?

[chanpion13]

Hi. Just say I have $50K in carry loss carryover. If I died this year, is the max still only $3K or can all $50K be used in my final year?

[Anonymous_]

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@chanpion13 wrote:

If I died this year, is the max still only $3K or can all $50K be used in my final year?

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Your loss carryover cannot be used after your death (it "dies with you").

In other words, the total loss carryover must be used during your lifetime.

[VolvoGirl]

So the max is still only $3,000.  The rest is lost and dies with you..  All you can do is have a lot of other gains to offset it.  Do you have other investments you can sell to create gains?  The 3,000 max loss is after you offset any gains.

[rjs]

The capital loss carryover is not $3,000 per year. The capital loss carryover is the total amount of losses that have not already been used. All of the capital loss carryover, up to the total amount, can be used to offset capital gains. If the entire capital loss carryover is not used to offset capital gains, up to $3,000 of the remaining unused loss can be used each year to offset ordinary income.

There is no special rule for the year of your death. Any capital loss carryover that remains unused on your final tax return is gone.

[NCperson]

@chanpion13 - remember when you die, all your investments are 'stepped up' to market value based on the price of each security on the date of death.  So there is no value to the loss carry forward at that point - there are no capital gains to be had as all the gains have been 'absolved'  by the step-up. 

Let's say the week before you die, you sell a number of securities and that has a $50k gain, so there is no capitgal gains tax to be paid on your final tax return, since the $50k gain is offset by the $50k loss carryforward.

But let's say, the week before you die, you DON't sell these securities! And on the day you die (you die in the morning) your executor sells those same securities at that day's closing price. There still won't be any capital gain to be paid because the cost basis on all the trades executoed by the Executor carry a cost basis equal to the market value of each security (due to the 'step up'). *

the loss carry forward loses it value upon death - because of the 'step up'. 

*I simplified this to make the point; the actual rules to determine the cost basis upon step-up are a little more detailed that what I used in the example 

[Anonymous_]

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@NCperson wrote:

....remember when you die, all your investments are 'stepped up' to market value based on the price of each security on the date of death.  So there is no value to the loss carry forward at that point....

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I realize that you were trying to simplify the rules, but there is certainly value lost to the extent of the total unused capital loss carryover that essentially disappears after death and the investments are marked to their fair market value on the date of death regardless of whether there is an unused loss carryover or not.

Although we always say "stepped-up", it also works the other way (i.e., stepped-down when the decedent's cost basis was higher than the value on the date of death).

[Mike9241]

because securities owned on the date of death get stepped up to or down to fair market value, it may make no difference if they are sold before death to use up capital losses available. 

[Anonymous_]

Losing unused loss carryovers is virtually always a bad thing since they are the result of previously recognized losses (from assets the decedent disposed of and no longer owned on the date of death).

The step-up or step-down applies to assets the decedent owned on the date of death and are the result of unrecognized gains or losses.

[NCperson]

@Anonymous_ investors just need to understand that investing has its risks - and the IRS is not going to help the investor out as a 'fair share partner' when there are losses. 

If there are net gains, yes, they will take their "fair share" of the net gain in the form of a tax, but when there is a loss (e.g. $3,000 annual limit on net losses, 'step down' at death, etc.), the IRS is not willing to be a 'fair share partner' in the same manner they are when there are net capital gains. 

[Anonymous_]

@NCperson: ....and everyone should understand that not investing has its risks (generally, in the form of inflation eating away at their savings, and there is absolutely no tax adjustment for that loss).

With respect to net losses resulting in loss carryovers and step-downs, taxpayers have the ability to ameliorate that situation with tax planning (at least to a certain extent) and investing wisely. For example, it would be hard to imagine something like a stock index fund that was purchased by a decedent many years ago getting anything other than a step-up today.

[NCperson]

@Anonymous_ - totally agree, thank you