Ask the Expert: How long does a loss carryforward last?

Several years ago, I sold all my Citicorp stock at a substantial loss. I still have over $50,000 in loss credit with the IRS. Each year, I chip away at this credit by using it to offset the tax on $3,000 of ordinary income. At this rate, I'd have to live into my late 90s to use it up. Can I expedite this process? If not, what will happen to the remaining credit when I pass away?

Unless you're survived by a spouse who jointly owned that stock, your loss carry-over will expire when you do.

Capital losses offset net capital gains dollar for dollar; but they can only be used to offset up to $3,000 a year of ordinary income. A $50,000 capital loss could offset a $50,000 capital gain — the taxable profit on the sale of assets like stocks, real state, or jewelry — in a single tax year. But it will take you 17 years to use it against ordinary income.

When your capital losses exceed your gains, you can continue carrying them forward to offset future capital gains or ordinary income. But a capital loss carry-over is only deductible by the taxpayer who sustained the loss, says Alan E. Weiner, a Plainview tax accountant. If you were the sole owner of that Citicorp stock, your surviving spouse could only use any remaining loss carryforward on the joint tax return filed for the year of your death. Then it would expire. But if she jointly owned the Citicorp stock, half of any remaining loss would be allocated to her; and she could carry it forward to offset future income as long as she lived.

The bottom line

Capital loss carryforwards expire at the death of the owner of the asset that generated the loss.

More information

bit.ly/JournalofAccountancyFinalReturn

bit.ly/TaxAdviserDeathCarryovers