Tax Attributes – Divorce
Capital Loss Carryovers
Capital loss carryovers are allocated to the spouse who originally incurred the loss. That can become complicated depending upon whether the carryovers were incurred before or during marriage and whether the loss was incurred as a result of selling community or separate property (2020 Pub 550, Page 67).
Passive Loss Carryovers
For separately owned property, the carryover goes to the spouse that owns the property. Where the property is jointly owned by both or is community property:
-
And continues to be owned by both after the divorce, 50% of the carryover would go with each spouse.
-
Where one spouse retains the property as part of a property settlement, 50% of the carryover becomes an adjustment to the basis of the property and the other 50% continues to be carryover for the spouse that retained the property.
Net Operating Loss (NOL) Carryovers
If taxpayers haven't been married to each other in all NOL years, the deduction may only be taken by the spouse who incurred the loss and only to offset income generated by that spouse in the carry back or carry forward years. (Although the TCJA eliminated carry backs for most NOLs incurred in 2018 or later. the CARES Act restored carry backs for losses incurred in 2018, 2019 and 2020.) As example, an NOL sustained by one spouse before marriage could not, when carried to a year in which the spouse was married, be used to offset the income of the other spouse (Calvin, Asa E. v. U.S., (1965, CA10)).
Joint Estimated Tax Payments
If the divorced spouses made joint estimated tax payments but file separate returns, they could divide the payments in any way on which they can both agree.
If they cannot agree, the estimated tax each can claim equals the total estimated tax paid times the fraction which is the tax on their individual return divided by the sum of the tax shown on their individual returns for the year (20211040 Instructions, Page 37).
Example: Bill and Jane were divorced during the year. Prior to the divorce they paid $5,000 in joint estimates. They are unable to agree upon how to divide the payments. Bill’s tax on his separate return is $10,000 and Jane’s tax on her separate return is $7,000. Thus, Bill’s share of the estimated taxes would be $2,941 ($5,000 x ($10,000/($10,000 + $7,000) and Jane’s would be the difference, $2,059.
-
When allocating joint estimated tax payments, include the former spouse’s SSN in the spouse block on page 1 of the 1040. If the taxpayer has remarried, enter the present spouse’s SSN in the spouse block on the 1040 and the former spouse’s SSN, followed by “DIV” to the left of line 26 on Form 1040 (2021).