Dependent Parents Capital Loss Claim


S

saurinmehta

My parents does not have any income. My spouse and I have been claiming
them as dependent for few years now in our joint return. Last year in
2008, I invested my money in my parents brokerage account and made a
overall loss of $5,400. I deposited my money on their account to do
investment.

My question is:

1) Can I claim my dependent parents under my return, if not do they have
to file tax return
2) Who can claim capital loss
a) If I claim them as dependent can I claim that loss and have deduction
in my tax
b) If they have to file their return how can they claim loss deduction if
they don't have any income
c) any other option

Thanks for help in advance

Mehta

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T

Tom Russ

Bearing in mind that I have no particular expertise in tax matters,
here is my take on your questions:


My parents does not have any income. My spouse and I have been claiming
them as dependent for few years now in our joint return. Last year in
2008, I invested my money in my parents brokerage account and made a
overall loss of $5,400. I deposited my money on their account to do
investment.
When you invested "your" money in your parents brokerage account, I
would think that it then became a gift to your parents, and it
effectively became "their" money. I am curious as to why you chose to
do the investment in their account rather than your own. Did you
intend to give them the money?
My question is:
1) Can I claim my dependent parents under my return, if not do they have
to file tax return
You will be able to claim your parents as dependents as long as they
meet the requirements. There are support and income tests to this,
but I don't recall the precise numbers for income. That doesn't seem
to be relevant at the moment, since you state your parents don't have
any income.
2) Who can claim capital loss
If the money is in their account, with their tax ID number, then it is
their money and their loss. So only they can claim the loss.
a) If I claim them as dependent can I claim that loss and have deduction
in my tax
No. It appears that the loss belongs to your parents since it comes
from their investment account.
b) If they have to file their return how can they claim loss deduction if
they don't have any income
They will have to fill out a schedule D and with no offsetting income
(this year), they will be able to carry forward the loss to future
years where it can offset capital gains and up to $3,000 per year of
other income.
c) any other option
Not that I am aware of. The loss belongs to your parents and not to
you, so they are the ones who get to claim it.

Now, some of this may change depending on specific details of the
arrangement of the investment account. But that would require a lot
more information than we have available here.
 
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D

D. Stussy

saurinmehta said:
My parents does not have any income. My spouse and I have been claiming
them as dependent for few years now in our joint return. Last year in
2008, I invested my money in my parents brokerage account and made a
overall loss of $5,400. I deposited my money on their account to do
investment.

My question is:

1) Can I claim my dependent parents under my return, if not do they have
to file tax return
It is possible as long as they don't file jointly. There are 3 other tests
that have to be met also (you already meet the relationship test).
2) Who can claim capital loss
It was THEIR account. You gifted them the money and they lost it.
 
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A

Alan

saurinmehta said:
My parents does not have any income. My spouse and I have been claiming
them as dependent for few years now in our joint return. Last year in
2008, I invested my money in my parents brokerage account and made a
overall loss of $5,400. I deposited my money on their account to do
investment.

My question is:

1) Can I claim my dependent parents under my return, if not do they have
to file tax return
2) Who can claim capital loss
a) If I claim them as dependent can I claim that loss and have deduction
in my tax
b) If they have to file their return how can they claim loss deduction if
they don't have any income
c) any other option

Thanks for help in advance

Mehta

-------------------------------------





.
Let me tell you what this "sounds" like, as I have seen it often
in the past. (This is not to say, that what follows was your
intent.) A taxpayer has a close relative that has little to no
income and pays no taxes. The taxpayer to evade paying tax at
his/her own rate, uses an account in the relative's name to make
investments that throw off income (interest, dividends, capital
gains) which is then taxed at a lower rate or even not taxed. The
gains are then given to the taxpayer who is managing the account.
This use to be done with children before the IRS over time
tightened the rules as to how children's income gets taxed.

The reason I said it "sounds' like the above is that you said you
invested your money in their account. You didn't say, that you
made them a gift and then managed their account. So let me ask
you this:

What was your intent if the account had income? Where did you
intend to report that income?
 

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