Author Topic: Unreported Capital Loss in Minor's Brokerage Account  (Read 651 times)

elysianfields

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Unreported Capital Loss in Minor's Brokerage Account
« on: July 25, 2017, 10:00:33 AM »
Howdy Mustachians!

I have a UTMA Brokerage Account for my minor daughter.  She realized a capital loss in 2010, but because she had no taxable earnings, I never filed a tax return for her in that year.  She has not had any taxable earnings in the interim that I would need to offset.

This year, I'm about to sell some of her holdings to finance her college education, for which she will have capital gains.

Can I deduct the capital loss from 2010 against her capital gains in 2017?  If so, how?

seattlecyclone

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #1 on: July 25, 2017, 11:47:50 AM »
The first $3,000 of net losses should have been claimed in 2010. Any additional loss could carry forward to 2011, limited to $3,000, and so on. The only way you would still be able to use this loss to offset taxes in 2017 is if the original amount was more than $21,000. If that's the case, you would probably need to file amended tax returns if it's even still possible to do that all the way back to 2010.
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sokoloff

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #2 on: July 25, 2017, 12:24:11 PM »
The first $3,000 of net losses should have been claimed in 2010. Any additional loss could carry forward to 2011, limited to $3,000, and so on. The only way you would still be able to use this loss to offset taxes in 2017 is if the original amount was more than $21,000.
I believe in the case where there is no capital gains nor ordinary income to offset, that the $3K of losses that you can claim against ordinary income per year is not "consumed", but rather continues to rollover.

elysianfields

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #3 on: July 25, 2017, 03:07:39 PM »
The first $3,000 of net losses should have been claimed in 2010. Any additional loss could carry forward to 2011, limited to $3,000, and so on. The only way you would still be able to use this loss to offset taxes in 2017 is if the original amount was more than $21,000.
I believe in the case where there is no capital gains nor ordinary income to offset, that the $3K of losses that you can claim against ordinary income per year is not "consumed", but rather continues to rollover.

Thanks to you both for your responses.  As I mentioned in the OP, my daughter didn't have any CG, earned, or ordinary income worth offsetting since 2010 given her very low income during the period.

How do I fix this now?  It seems to me that I should submit an amended 2010 return for my daughter, using Schedule D to note the capital loss.  Since no returns were required between 2011 and 2016, I don't think I need to submit anything for those years.  Next year she then submits a regular return and notes the carryforward on Schedule D against her 2017 CGs.  Right?

seattlecyclone

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #4 on: July 25, 2017, 05:57:11 PM »
The first $3,000 of net losses should have been claimed in 2010. Any additional loss could carry forward to 2011, limited to $3,000, and so on. The only way you would still be able to use this loss to offset taxes in 2017 is if the original amount was more than $21,000.
I believe in the case where there is no capital gains nor ordinary income to offset, that the $3K of losses that you can claim against ordinary income per year is not "consumed", but rather continues to rollover.

Interesting. Fairmark agrees.

The instructions for Form 1040X say that you need to file it within three years if you want a refund on that year's taxes, but does not mention any deadline if the amount of tax that year would increase or be unchanged.
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CareCPA

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #5 on: July 25, 2017, 08:24:22 PM »
If no original return was filed, you would not file an amended return (as there is nothing to amend).
I would imagine you could file the 2010 and establish the loss carryforward, but you should do some additional research to verify.
Seattlecyclone is correct that a refund would not be issued (which isn't the case anyway) for a return that far back, but I don't know for sure on carryforward attributes off the top of my head.
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I am a licensed CPA in Pennsylvania. However, any tax advice I give should be considered general information and not used in the avoidance of tax. There is most likely information about your situation that I do not know, and thus you should do your own additional research.

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secondcor521

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #6 on: July 26, 2017, 01:06:12 AM »
The first $3,000 of net losses should have been claimed in 2010. Any additional loss could carry forward to 2011, limited to $3,000, and so on. The only way you would still be able to use this loss to offset taxes in 2017 is if the original amount was more than $21,000.
I believe in the case where there is no capital gains nor ordinary income to offset, that the $3K of losses that you can claim against ordinary income per year is not "consumed", but rather continues to rollover.

Thanks to you both for your responses.  As I mentioned in the OP, my daughter didn't have any CG, earned, or ordinary income worth offsetting since 2010 given her very low income during the period.

How do I fix this now?  It seems to me that I should submit an amended 2010 return for my daughter, using Schedule D to note the capital loss.  Since no returns were required between 2011 and 2016, I don't think I need to submit anything for those years.  Next year she then submits a regular return and notes the carryforward on Schedule D against her 2017 CGs.  Right?

My reading of tax law on this - and it has been a while and I'm no expert - is that the capital loss is consumed by your daughter's income starting in 2010 whether you want it to or not and whether her income was taxable or not.

If your daughter did not have over a certain amount of income, she is not obligated to file a return.  However, even in that case I think the capital loss gets consumed by her income.

It would be nice if we could choose whether to apply a capital loss carryover, but I don't think we can.

What I would do is complete the capital loss carryover worksheets from 2010 through 2016.  If you have any left (which will depend on the relative sizes of her original capital loss and her income in the intervening years), enter it on her 2017 tax return as a capital loss carryover on line 6 of her 2017 Schedule D if it was a short term capital loss originally, or line 14 of her 2017 Schedule D if it was a long term capital loss originally.

Good luck!
« Last Edit: July 26, 2017, 01:12:09 AM by secondcor521 »
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elysianfields

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #7 on: July 28, 2017, 06:54:52 AM »
Thanks to all who replied for helping me understand the issue clearly, I very much appreciate it!

As a next step I'll research the income she had during the intervening years and compare those amounts to that of the original LTC loss to see whether it makes sense to file all those returns, while keeping her gains this year under the kiddie tax limit ($2,100 IIRC).

Cheers,

Elysian

elysianfields

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #8 on: July 28, 2017, 09:17:16 PM »

My reading of tax law on this - and it has been a while and I'm no expert - is that the capital loss is consumed by your daughter's income starting in 2010 whether you want it to or not and whether her income was taxable or not.

If your daughter did not have over a certain amount of income, she is not obligated to file a return.  However, even in that case I think the capital loss gets consumed by her income.

It would be nice if we could choose whether to apply a capital loss carryover, but I don't think we can.

What I would do is complete the capital loss carryover worksheets from 2010 through 2016.  If you have any left (which will depend on the relative sizes of her original capital loss and her income in the intervening years), enter it on her 2017 tax return as a capital loss carryover on line 6 of her 2017 Schedule D if it was a short term capital loss originally, or line 14 of her 2017 Schedule D if it was a long term capital loss originally.

Good luck!

Looking at my daughter's low level of income over the period, the standard deduction, even at the $1,050 kiddie-tax level, wipes out her income in every tax year since 2010.  I'm definitely filing some back tax-forms to get this LTCG carry-forward.

secondcor521

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #9 on: July 28, 2017, 09:39:04 PM »
Sounds good.

I didn't spell this out very clearly before, but you probably don't need to file tax returns for your daughter.  What you need to do is complete a capital loss carryover worksheet for each of the intervening years.  It will probably say to keep the worksheet for your records, but you do need not file anything with the IRS if she does not owe taxes and didn't have any taxes withheld (which she probably didn't).

I think, when I researched this before, the capital loss carryover worksheet is found in Pub 550.

Good luck!
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elysianfields

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #10 on: July 29, 2017, 08:24:14 AM »
Sounds good.

I didn't spell this out very clearly before, but you probably don't need to file tax returns for your daughter.  What you need to do is complete a capital loss carryover worksheet for each of the intervening years.  It will probably say to keep the worksheet for your records, but you do need not file anything with the IRS if she does not owe taxes and didn't have any taxes withheld (which she probably didn't).

I think, when I researched this before, the capital loss carryover worksheet is found in Pub 550.

Good luck!

Very helpful, thanks!  That has the added benefit of eliminating some paperwork.  :-)

Adding my interpretation, it would seem that completing the capital loss carry-over worksheet would supplement the documentation from the broker should the IRS ever wish to see justification for the capital loss claim.

secondcor521

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Re: Unreported Capital Loss in Minor's Brokerage Account
« Reply #11 on: July 29, 2017, 11:37:20 AM »
Sounds good.

I didn't spell this out very clearly before, but you probably don't need to file tax returns for your daughter.  What you need to do is complete a capital loss carryover worksheet for each of the intervening years.  It will probably say to keep the worksheet for your records, but you do need not file anything with the IRS if she does not owe taxes and didn't have any taxes withheld (which she probably didn't).

I think, when I researched this before, the capital loss carryover worksheet is found in Pub 550.

Good luck!

Very helpful, thanks!  That has the added benefit of eliminating some paperwork.  :-)

Adding my interpretation, it would seem that completing the capital loss carry-over worksheet would supplement the documentation from the broker should the IRS ever wish to see justification for the capital loss claim.

Yup, that's exactly why it says at the top of the worksheet "Retain for your records" or some such.
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