Custodial Account 1099-B with Losses - required filing?

[ProphestPriestAndKing]

Hello esteemed members. I have 3 kids and each have custodial accounts and each have received 1099 that includes 1099-INT, 1099-DIV, and 1099-B.

I have seen conflicting responses (perhaps due to change in recent law?) on whether or not custodial accounts "need" to be filed, and whether they "need" to be filed separately instead of part of the my (the parents') taxes.

To be specific (because all 3 accounts are managed similarly), they have INT and DIV that together made less than $50, and 1099-B that reported losses of about $200, so overall loss. 

My questions are:

1. Am I required to file each kids' activity to IRS?

2. If so, must I report them under their own return (is it because of the presence of 1099-B?)

3. If I don't need to report them, am I primarily losing the benefit of offsetting future capital gains?

Thank you. I tried reviewing past questions and IRS child rules and none seem to answer this scenario.

[MelindaS1]

Since this is below the dependent filing requirement of $1,350 in unearned income, it should not be reported on your tax return, per the IRS instructions for Form 8814. This isn't your income, so you don't have the right to the capital losses, in any case.

Review the dependent filing requirements separately for your state tax return instructions. 

You'll want to review the custodial 1099's for any federal or state tax withholding, in which case you may file a tax return for them to receive a refund. 

See TurboTax FAQ - What's the Kiddie Tax?:

The Kiddie Tax applies if your child:

• has unearned income (usually from investments) exceeding $2,700
• is required to file a return
• isn’t filing jointly
• is under age 18 (or under age 24 if a full-time student) as of January 1, 2026

How is Kiddie Tax calculated?

The Kiddie Tax only applies to unearned income in excess of $2,700.

• $0 - $1,350 isn't taxed.
• $1,351 - $2,700 is taxed at the child’s tax rate.
• Over $2,700 is taxed at the parents’ marginal tax rate.

Note that if the child has earned income in excess of the standard deduction (such as wages from part-time employment) they will be required to file their own tax return and include the UTMA investment income (the 1099's) on their own. 

Learn more: IRS - Topic no. 553, Tax on a child's investment and other unearned income (kiddie tax)

[ProphestPriestAndKing]

Thank you. By capital loss I meant for my kids when they file future taxes where they may have profit in the near future; would it be beneficial for them for that reason if I filed? Just want to weigh the pros and cons for filing vs. not filing. Thank you.

[MelindaS1]

Yes, but you would need to file a separate 1040 for the child in their name in order to report an unused capital loss carryover amount. 

Note: in this case, the IRS will be automatically running the income on the tax return against the income on their wage and income transcript database; it may be better-safe-than-sorry to report all the child's unearned income, to prevent an automated underreporting notice, (and any back-and-forth with the tax agency). 

If reporting all the custodial 1099's on a child's separate 1040, verify that no tax is being calculated on any of the income amounts into the Form, on 1040 Line 24.