NOL for Spouse

[Gail in Virginia]

I think that I am probably just not thinking clearly, but I am filing a tax return for a widow for whom this is the first year filing as single since her husband died. There was an NOL on last year's joint return, related to the sole proprietorship that the husband used to have. Does she get to continue taking this NOL until it is used up (if it ever is)? And what about the cancellation of debt income in his name - does she report that? I feel like she should, since she probably benefited from the original debt but what is correct? Sometimes it doesn't pay to work by Friday.............

[jklcpa]

Re the NOL - No the widow can't carry it forward. It can only be used by the person who sustained the loss and must have enough income on their own to offset it in a carryback or carryforward year when marital status changes, including death. Check pub 536.

I'm not sure about the COD. I'd have to research that because of the specific rules related to COD, but it seems like that would also be IRD, but I don't know.

[Jack from Ohio]

Agree with jklcpa.

See, it can and does happen....

Also, she will not be liable for the COD if her name is not on any of the accounts where the debts were forgiven.

[jklcpa]

I did some brief reading and I think the COD is IRD that should be considered in determining whether an estate income tax return is required to be filed. I'd send that 1099-C on to the attorney handling the estate filings.

[Mr. Pencil]

And what about the cancellation of debt income in his name - does she report that? I feel like she should, since she probably benefited from the original debt but what is correct?

If the debt was cancelled because of death, this is income to the estate, not IRD even though the form has the decedent's SSN. Unless the estate is insolvent COD is taxable or must be distributed to the heir. In other words, if she inherited assets that could have paid the debt, COD is part of her deal. In practical terms, the IRS might not follow up if the amount is small.