5.5 Capital Losses of Married Couples

On a joint return, the capital asset transactions of both spouses are combined and reported on one Schedule D. A carryover loss of one spouse may offset capital gains of the other spouse on a jointly filed Schedule D. Where you and your spouse separately incur net capital losses, $3,000 is the maximum capital loss deduction that may be claimed for the combined losses on your joint return. This limitation may not be avoided by filing separate returns. If you file separately, the deduction limit for each return is $1,500. Neither of you may deduct any of the other’s losses on a separate return.

EXAMPLE
In 2012, you individually incurred net long-term capital losses of $5,000 and your spouse incurred net long-term losses of $4,000. If you file separate returns, the maximum amount deductible from ordinary income on each return is $1,500. The balance must be carried forward to 2013.
If you had net losses below the $1,500 limit, you could not claim any part of your spouse’s losses on your separate return.

Death of a spouse.

The IRS holds that if a capital loss is incurred by a spouse on his or her own property and that spouse dies, the loss may be deducted only on the final return for the spouse (which may be a joint return). The surviving spouse may not claim any unused loss carryover on a separate return and the decedent’s estate may not deduct the unused carryover.

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image Filing Tip
Carryovers From Joint or Separate Returns
If you or your spouse has a capital loss carryover from a year in which separate returns were filed, and you are now filing a joint return, the carryovers from the separate returns may be combined on the joint return. If you previously filed jointly and are now filing separately, any loss carryover from the joint return may be claimed only on the separate return of the spouse who originally incurred the loss (5.5).
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EXAMPLE
In 2009, Alex Smith realized a substantial net long-term capital loss on separately owned property, which was reported on a 2009 joint return filed with his wife, Anne. Part of the excess loss (over the $3,000 limit) was carried over to the couple’s 2010 joint return. In 2011, before the carryover loss was used up, Alex died. Anne could claim the unused carryover, up to the $3,000 limit, on a joint return filed for 2011, the year of Alex’s death. However, any remaining loss carryover to 2012 or later years is lost. Although the loss was originally reported on a joint return, Anne may claim only her allocable share of the loss on her individual returns for years after 2011, the year of Alex’s death. However, since the loss property was owned solely by Alex, no part of the loss is allocable to Anne.
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