Your Tax Questions Answered
Losses: You Can't Take them with You
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
March 16, 2010
QUESTION: I'm in my late 70s and have recently accumulated about $100,000 of long term capital losses. I can't realistically expect to use all that loss up in my lifetime. I have considered selling and quickly repurchasing my winners but this is of little value to my heirs Are there other options?
KEVIN ANSWERS: Good question, but I’m afraid I can’t come up with a strategy to help. . . except to wish you a long and prosperous life so you can score enough capital gains to use up that boatload of losses. Even with no capital gains, you only need to live 33 more years to use up the losses at $3,000 a year!
Seriously, it’s clear that you know that any carryover losses that remain at the time of your death die with you; you can’t pass them on to heirs. And, selling winners that would otherwise be inherited by your heirs simply to use up the carryover losses is meaningless since your heirs will get a step-up in basis to date-of-death value, wiping out the tax on the gain anyway. Of course this assumes that the Congress gets around to retroactively reinstating the estate tax. As things now stand, there is a limit to stepped-up basis. But, we expect Congress to act.
QUESTION: I decided to rent my property for 2009 for approximatly four months and at the end of the year my tenants did not come up with the full rent amount, so I covered a portion of it. How can I claim a loss on my 2009 tax return? Since I'm new to this, regarding rental property and taxes, can you walk me through the process?
KEVIN ANSWERS:You can’t deduct the rent you didn’t collect, but the reduced income could give you a deductible loss. When you have a rental property, you report income on Schedule E that accompanies your Form 1040. That’s also the form you use to report all of your rental expenses. Since the missed rent payment will reduce your income for 2009, it could produce, or increase, your loss for the year. Up to $25,000 of such losses are deductible if you actively manage the property. (The right to this deduction gradually disappears as your income rises from $100,000 to $150,000.) You’ll find a lot of helpful information in the IRS publication about rental properties.
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Reader Comments (7)
Posted by: Wayne Shockley at 03/17/2010 11:18:36 AM
Speaking of losses and death...Say for example you file a joint income tax return with your wife and have carryover losses. You die and your wife survives you. Does she also forfeit her $3,000 annual deductions too? Thanks
Posted by: Van H. at 03/18/2010 12:35:05 PM
I received a special issue Tax Letter in Oct. '09 about qualified plans. I received a required distribution in 2008. My plan sold enough to send me a check but the amount sold was almost one and a half times what I received so I had a loss because of the down market. The Tax Letter states that a new law was passed to take this loss off my return. Do I put it on 2009 or amend my 2008 return? How can I prove this with IRS? Thanks,
Posted by: angie at 04/03/2010 11:57:19 AM
Why is there such a difference in my state taxes, I owe, and the federal taxes? i'm getting a refund. They are almost a wash between the 2, I owe 200.00 in state taxes. What can I do so this doesn't keep happening? It's been this way the past few years.
Posted by: JB at 04/09/2010 12:22:32 PM
I built a studio/office for my business last year. I own the property. How do I claim this as an expense?
Posted by: Codad at 04/11/2010 05:29:30 PM
How does one treat the GM stock debacle? I owned BGM, received bankruptcy letters, received a statement from broker showing distros for MTLQ.GP as interest income, and my BGM stock of course is no more. I included the distros for MTLG.GP as income, now how do I claim the loss for the BGM? Is there any gift deduction any longer to your children? If I received some bonds as an inheritance and were called on par by issuer, how do I report this and figure cost basis? From time of inheritance? Have claimed interest income for years past already.
Posted by: Tom at 04/12/2010 10:06:38 AM
Hello Kevin, Simple question If a person has a capital loss carryover of say $15K in 2008, must this carryover be applied to each subsequent years tax return ($3K max loss per year with no capital gains), or can it be saved and used 5 years in the future to offset capital gains that are expected to occur (due to stock options vesting)? The reason for the question is because I get hammered by the AMT each year, which effectively eliminates the effectiveness of my deductions (property taxes -$22K and state taxes -$7K paid). Thanks. Tom
Posted by: Venus Gordon at 04/26/2010 01:37:26 PM
IRS took over $5,000 in 2006 with understanding that they didn't hear from me...I normally used to file my taxes every year, so I didnt understand why the first time supposed to have owed and made less than 50,000 a year. How can I request for my money back? Thanks