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Subject:  Re: Childs Custodial Account Loss Date:  4/12/2002  5:41 AM
Author:  pmarti Number:  60219 of 131086

Child's income
One 1099-B is $975 with a basis of $775. Gains ST-$100, LT $100
Second 1099-B is $500 with a basis of $1500 - long term loss $1000
DIV income is $50.

My original question: I was presuming that he is not required to file a return because he did not have $750 in income. Therefore, his $200 capital gain would be nontaxable if I were to factor out the loss completely hypothetically assuming it did not occur.

But, factoring IN the loss, if I fill out the Sch D, the $1000 loss is reduced by the $200 in gains (which it should) resulting in a carryover of $800. If each of the next few years also result in gains of a few hundred dollars only and I keep reducing the carryover each year by those small amounts, then I will have used up all of the original $1000 loss with small annual amounts that were never taxable in their respective years.

Is this what would really happen or am I going wrong somewhere.

That's what would happen. The loss carryover goes from the 2001 worksheet to the 2002 Schedule D, where it's just like any other line on the Schedule D. If the 2002 Schedule D shows gains, the loss will be applied to those gains.

Also, perhaps I am misunderstanding his requirement to file. I thought the $750 in income referred to AGI. But you made a reference that if 1099-B reported $1000 with a basis of $200 then he would be required to file.

The filing requirement is clearly not based on AGI (line 33 of the 1040).

With the facts you've stated, the child has more than $750 gross receipts, but not more than $750 in gross income (line 22 of the 1040). To me that says the child is not legally required to file a return.

I agree with Ira that the child should file a return, for two reasons.

1. Without a return, IRS sees (from the 1099-B's) receipts more than the filing requirement of $750, but knows nothing of the basis. Thus, they have no way of knowing what the child's income really is and may pester him.

2. You gain nothing, except for a few minutes of time, by not filing the return. There is no way to "preserve" a 2001 capital loss intact until the child's Non-Schedule D income is sufficient to use it up.

Phil Marti
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