how do I report dependent income/loss

[stech]

Filing has MFJ with son as dependent. In 2020, son had stock investments losses of -$17000. How do I report it on my return? or does son needs to file on his own. He is 26 years old, lives with me and goes to college.

On Sch D, there is an option, if income is for Taxpayer 1 or Taxpayer 2 (spouse)  or joint. It doesn't have my son's name listed. So does this mean, I report it has Jointly? (assuming I can claim him on my return)

[Mike9241]

sorry, it does not get reported on your return. he needs to file his own return. 

[stech]

@Mike9241 - Thanks, where is the IRS guidance on this? I thought it was only if it has income of unearned > $1100?

[DMarkM1]

Below is from IRS Publication 501.  Your son is over 24 and only capital gains on a 1099-Div would be eligible; no capital losses (or for that matter gains on a 1099-B).  

Election to report child's unearned income on parent's return.

You may be able to include your child's interest and dividend income on your tax return. If you do this, your child won't have to file a return. To make this election, all of the following conditions must be met.

• Your child was under age 19 (or under age 24 if a student) at the end of 2020. (A child born on January 1, 2002, is considered to be age 19 at the end of 2020; you can't make the election for this child unless the child was a student. Similarly, a child born on January 1, 1997, is considered to be age 24 at the end of 2020; you can't make the election for this child.)

• Your child had gross income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).

• The interest and dividend income was less than $11,000.

• Your child is required to file a return for 2020 unless you make this election.

• Your child doesn't file a joint return for 2020.

• No estimated tax payment was made for 2020 and no 2019 overpayment was applied to 2020 under your child's name and social security number.

• No federal income tax was withheld from your child's income under the backup withholding rules.

• You are the parent whose return must be used when making the election to report your child's unearned income

[stech]

@DMarkM1 thanks, but I went through the IRS website Q&A & it says, I can claim son as dependent. They do ask, if son has gross income > $4,300. Since, it was a loss, I can claim it? Age is not a factor on that website? 

Here is the link to that Q&A

https://www.irs.gov/help/ita/whom-may-i-claim-as-a-dependent

[CatinaT1]

You may be able to claim him as a dependent, but you can not claim his loss just because he is a dependent.

[Hal_Al]

Confirming what the others have said:

1. You can claim your son as a dependent.

2.  You do not report his capital loss on your tax return*.  It is not optional.

Assuming he has no other income, he does NOT need to file a tax return to report this capital loss.  He needs to keep track of his capital loss carry forward for future years.  That is, he must reduce the carry forward by any amount that "woulda" been used up, if he had filed a tax return.  With 0 other income, that amount is 0, so the whole $17,000 carries forward.

Th slight risk in him not filing a tax return, is that the IRS might consider the entire 1099-B amount taxable and send him a dunning letter.  But, that is easily explained. 

*You cannot report it on your return because:

1. Capital losses (and most capital gains) are not allowed under the form 8814 rules

2. Form 8814 is not applicable to dependents over age 23

[jesunattt]

If my son is under age 24 by end of 2021. Can I report his capital loss Or capital loss carry over from 2020? Thanks!

[GeorgeM777]

No, that loss can’t be used by you, the parent, to offset your own gains or other income.  In terms of what you can include on your return, you may be able to include your child's interest and dividend income (including capital gain distributions) provided the interest and dividends is their only income and such income totals less than $11,000.  

If the child has a net capital loss, perhaps the best option is to file a separate return on their behalf to memorialize the capital loss carry forward that can be applied to their future year gains.

@jesunatt

[jesunattt]

GeorgeM777 your answer is very helpful. Thank you very much!