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I would appreciate feed-back on my understanding of cited subject that I have "Googled".

DW and DH have individual brokerage accounts and have always filed only joint federal tax returns since they live in Washington state.

In 2012, DH died. After his death, DW made only a one financial transaction when she sold a stock in her brokerage account that resulted in a $9,000 loss. In their final joint return for 2012, they claim a $3,000 loss.

In 2013 and 2014, DW does not sell any assets and thereby claims a $3,000 loss for each year when doing her federal tax return.

Is my understanding of this scenario correct?

Thanks in advance for your help, as always.
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Is my understanding of this scenario correct?

Yes.

Phil
Rule Your Retirement Home Fool
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Thanks, Phil. Hope all is well with you in Maryland.

Joe
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papaduke101 writes (in part):

DW and DH have individual brokerage accounts and have always filed only joint federal tax returns since they live in Washington state.

In 2012, DH died. After his death, DW made only a one financial transaction when she sold a stock in her brokerage account that resulted in a $9,000 loss. In their final joint return for 2012, they claim a $3,000 loss.

In 2013 and 2014, DW does not sell any assets and thereby claims a $3,000 loss for each year when doing her federal tax return.

Is my understanding of this scenario correct?


I reply:

I'm not as sure as Phil is. Washington is a community property state. Even though the accounts were titled in each spouse's individual name, it's at least possible that the stock was actually community property, and if that is the case, the basis would step up (or in this case, down) as of the husband's death. --Bob
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I'm not as sure as Phil is.

That's because you're answering a question that wasn't asked (basis for the surviving spouse going forward) rather than the one that was (capital loss carryovers by surviving spouse).

Phil
Rule Your Retirement Home Fool
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TMFPMarti writes:

That's because you're answering a question that wasn't asked (basis for the surviving spouse going forward) rather than the one that was (capital loss carryovers by surviving spouse).

I reply:

My concern is the possibility that papaduke101 simply assumed that the wife's basis didn't change because the account was titled in her name individually. I don't think that's always the case, and given that papaduke101 began the process of getting up to speed via an Internet search, it's possible he made an unfounded assumption.

In other words, I'm not willing to assume papaduke101 is correct that there was a $9,000 capital loss in the first place without at least verifying the assumption. --Bob
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Bob & Phil,

I did not assume anything regarding DW's stock sale since she sold all the shares; thus there is no basis going forward.

Joe
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I did not assume anything regarding DW's stock sale since she sold all the shares; thus there is no basis going forward.

The "going forward" of which I spoke is from DH's date of death. IF your original statement that there was a $9,000 realized capital loss for tax purposes in 2012 is correct, your statements about how that loss is used up are correct.

OTOH, if the stock sold was community property Bob correctly points out that its basis would change at DH's death even though it was in an account solely in her name. It's still possible that a later sale of it could yield a $9,000 loss, but Bob wanted to make sure you were aware of the basis change for community property upon the death of the spouse.

Phil
Rule Your Retirement Home Fool
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Phil & Bob,

Thanks to both of you for the replies that provided a very important clarification to my hypothetical scenario.

Joe
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