One tax rule many people don’t realize: capital losses don’t fully carry over after the death of a spouse. When a married couple files jointly, capital losses can be carried forward year after year to offset future gains. However, when one spouse passes away, those loss carryforwards are effectively split between the spouses based on ownership. The surviving spouse generally only retains the portion attributable to them, while the deceased spouse’s share expires and cannot be used in future years. In some situations, it may make sense to realize capital gains in the year of death to utilize those losses while the couple can still file Married Filing Jointly. Like many areas of tax planning, timing can make a significant difference.
