How Are Capital Loss Carryovers Divided in a Divorce? (w/Examples) + FAQs

When you divorce, your Capital Loss Carryover (CLC) is divided based on a strict federal rule: the loss stays with the spouse who actually owned the asset that created the loss.¹

This creates a massive problem. The Internal Revenue Service (IRS) has a binding, mechanical regulation for tax administration, often cited from Treasury Regulations like Regs. Sec. 1.1212-1(c).² This federal rule directly conflicts with the primary goal of state-level family courts, which is to divide marital property fairly or equitably.³

The negative consequence is that one spouse can walk away with 100% of a valuable financial asset, while the other spouse, who may have shared in the “marital loss,” gets nothing. This “frequently forgotten” ⁶ asset, which can be worth tens or even hundreds of thousands of dollars in future tax savings ⁵, is “often overlooked” in divorce negotiations, to one spouse’s great financial detriment.⁷

Here is what you will learn from this guide:

🎯 How the IRS mechanically divides your joint carryover and why you cannot legally ignore their rule.
⚖️ The huge conflict between the federal “source” rule and your state’s “equitable” divorce laws.
💰 The “Offset” solution and how to “buy out” your spouse’s share of the loss in Equitable Distribution states like New York or Florida.
🤝 Why Community Property states like California or Texas have a simpler, built-in 50/50 solution for marital losses.⁸
📝 The exact “tracing” process and worksheets ¹⁰ your CPA must use to prove to the IRS who really owns the loss.

What Is a Capital Loss Carryover? (And Why Is It a Valuable Asset?)

It’s Not Just a Loss; It’s a “Tax Shield”

A capital loss happens when you sell a capital asset, like a stock or mutual fund, for less than you paid for it. The IRS lets you use these losses to offset, or “shield,” your capital gains in the same year.

If your losses are greater than your gains, you have a “net capital loss.” The IRS lets you deduct up to $3,000 of this net loss against your ordinary income (like your salary) each year ($1,500 if you file as Married Filing Separately).¹¹

If your net loss is more than $3,000 (for example, $100,000), you can’t use it all in one year. The unused portion is not lost. It is “carried over” or “carried forward” to the next tax year, and the next, and the next, “indefinitely” until it is all used up.⁷

This carryover is a valuable financial asset. It represents “real monetary value” ¹⁴ because it’s a guaranteed tax shield that will reduce your future tax bills. In a divorce, this “future interest” ⁷ is property, just like a bank account, and it must be divided.

The Key Players: Who Controls This Asset’s Fate?

Dividing this asset is complicated because three different parties have conflicting goals.

The IRS (The Administrator): The IRS does not care about your divorce agreement’s idea of “fairness”.¹⁵ They are a federal agency focused only on tax administration. Their single goal is to ensure the correct person claims the correct deduction according to their regulations.²
The State Family Court (The Distributor): The state judge cares only about state law. In “Equitable Distribution” states (like New York, Florida) ³ or “Community Property” states (like California, Texas) ¹⁷, the court’s goal is to divide marital property fairly or equally. They see the CLC’s value as a marital asset.⁵
The Spouses & Their Team (The Negotiators): You and your ex-spouse, along with your respective divorce lawyers ¹⁴ and “qualified tax professionals” (CPAs) ⁶, are the ones caught in the middle. Your team’s job is to find a solution that simultaneously satisfies the IRS’s mechanical rule and the family court’s “equitable” demand.⁴

The Federal Hammer: The IRS’s Unbreakable “Source Rule”

Before you even speak to your lawyer, you must understand the federal rule. This rule is absolute and overrides any state court order to the contrary.³

“The Spouse Who Actually Had the Loss”

The IRS states its rule very clearly in its publications, including Publication 544 (“Sales and Other Dispositions of Assets”).

The rule is: “…if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss.”.²¹

This single sentence is the source of the entire conflict.

How the IRS Defines “Who Had the Loss”

The IRS is a literal organization. To them, “who had the loss” is not about who earned the money or who is in a worse financial position. It is about legal title.³

If the Loss Came from Solely-Owned Property: If the investment account (e.g., a Fidelity or Schwab account) was titled only in one spouse’s name, 100% of the loss belongs to that spouse.²⁶ This is true even if the account was funded with marital money.
If the Loss Came from Jointly-Owned Property: If the investment account was titled in both spouses’ names (e.g., as joint tenants), the IRS agrees that the loss is split equally. Each spouse is allocated 50% of the carryover.²⁶

This means you cannot simply “give” your half of the CLC to your spouse, nor can you “take” theirs. A state divorce decree that says, “Spouse A and Spouse B shall each claim 50% of the $100,000 CLC” is legally void in the eyes of the IRS if the asset was solely-owned by Spouse A.³

The “Re-Computation”: Proving the Loss to the IRS

You cannot just guess who owned the loss. The IRS requires you to prove it by performing a “separate capital gain and loss calculation”.⁴

This “re-computation” or “tracing” is a forensic accounting exercise. Your CPA must go back to the tax year the loss was created. They must “re-create” the Schedule D as if you and your spouse had filed separately that year, attributing each individual stock sale to the spouse who owned the account.

Here is a simplified example based on tax journal analysis ²:

Individual Tax Data (From 2023 Joint Return)	Spouse 1 (Tom)	Spouse 2 (Sarah)	Joint Return Total
Short-Term (ST) Gain/Loss	($15,000) (From Tom’s E*Trade Acct)	$2,000 (From Sarah’s Robinhood Acct)	($13,000)
Long-Term (LT) Gain/Loss	$6,000 (From Tom’s E*Trade Acct)	($1,000) (From Sarah’s Robinhood Acct)	$5,000

Individual Net Gain/Loss	($9,000)	$1,000	($8,000)
2023 Joint Deduction Limit			($3,000)
Total CLC to 2024			($5,000)

Now, look at the allocation for their 2024 separate returns:

2024 Post-Divorce Allocation	Spouse 1 (Tom)	Spouse 2 (Sarah)
Allocation per IRS Rule	($5,000)	$0

Why? The total $8,000 joint loss was the net result of Tom’s $9,000 individual net loss and Sarah’s $1,000 individual net gain. The entire $5,000 carryover is “attributable to” Tom.

Under federal law, Tom must claim 100% of the $5,000 CLC, and Sarah must claim $0.

The Great Divide: When State “Equitable” Law Collides with Federal Tax Law

The re-computation in the example above creates an obvious problem. Sarah is going to look at that result and say, “Wait! That E*Trade account was funded with his salary, which is marital money! That’s our loss, and I want my half!”

This is the central conflict of dividing a CLC.

The Core Conflict: A Marital Asset the IRS Won’t Let You Divide

In the 41 “Equitable Distribution” (ED) states, like New York, Florida, and Illinois, “marital property” is defined by when it was acquired, not whose name is on it.¹⁷ If an asset was acquired during the marriage, it is marital.⁷

State courts have repeatedly affirmed that a CLC is a “marital asset”.⁴ It is a “thing of value” ⁵ that must be “equitably distributed” (divided fairly).

This puts state law in direct opposition to the IRS rule.

State Court: “That $100,000 CLC is a marital asset. You must split its value.” ⁵
IRS: “That $100,000 CLC came from Tom’s account. Only Tom can claim it.” ¹

A divorce decree cannot force the IRS to allow Sarah to claim a deduction that is not hers under the Internal Revenue Code.³

The Solution: You Don’t Divide the Deduction, You Divide the Value

This is the Ph.D.-level solution that every top divorce attorney and CPA understands. You must separate the tax deduction (which is non-transferable) from the economic value (which is transferable).

Since the court cannot give Sarah the deduction, it will instead give her the cash value of her share. This is called an “offset of other assets”.²⁰

The spouse who keeps the tax deduction (Tom, in our example) must “buy out” the other spouse’s (Sarah’s) interest in that asset. Sarah receives an equalizing payment from another marital asset, like the home sale proceeds or a bank account.

How Do You Value a Future Tax Saving?

This “offset” solution creates a new, complex problem: What is a $100,000 CLC worth in today’s dollars?

You cannot just say it’s worth $100,000. It is only worth the tax savings it will generate, and those savings are in the future.⁵ This requires hiring a “qualified tax professional” ⁶ or valuation expert to perform a complex calculation based on several factors:

The Amount of the Loss: (e.g., $100,000).
The Type of Loss: A short-term CLC (which offsets gains taxed at high, ordinary income rates) is more valuable than a long-term CLC (which offsets gains taxed at lower rates).⁵
The Owner’s Future Tax Rate: The CLC is far more valuable to a high-income spouse (in the 37% bracket) than a low-income spouse (in the 12% bracket).¹⁷
The Expected Timeline: How long will it take to use the loss? If the spouse is just using the $3,000/year deduction, it could take decades. If they have other investments with large capital gains, they might use it all next year.
The Present Value (PV): The expert must take all these factors and “discount” the value of those future tax savings back to a single cash number today.⁵

This valuation is a critical point of negotiation. The spouse keeping the CLC will argue for a low valuation, while the spouse getting the offset will argue for a high one.

Three Divorces, Three Different Outcomes: CLC Scenarios Explained

How this plays out in practice depends almost entirely on your state and how the asset was titled.

Scenario 1: The “Simple” 50/50 Split (A Jointly-Owned Account)

This is the cleanest and simplest case.

The Spouses: Maria and David, living in Florida (an Equitable Distribution state).
The Asset: They have a $40,000 CLC from a jointly-titled Charles Schwab brokerage account.
The Analysis: The IRS rule and state law are in perfect agreement. The IRS sees a “jointly owned” asset and rules that the loss should be “split equally between the spouses”.²⁶ Florida law sees a joint marital asset and agrees a 50/50 split is “equitable.”

Rule	Division
IRS Rule	The asset was “jointly owned.” The loss is split 50/50. ²⁶
State Law (FL)	The asset is marital and joint. A 50/50 split is equitable.
Final Outcome	Maria claims a $20,000 CLC on her separate return. David claims a $20,000 CLC on his separate return. No offset is needed.

Scenario 2: The “Equitable Distribution Offset” (A Solely-Owned Account)

This is the most common and most contentious scenario.

The Spouses: Sarah and Tom, living in New York (an Equitable Distribution state).
The Asset: They have a $100,000 CLC from a Fidelity account titled only in Tom’s name. The account was funded with Tom’s salary, which is marital income.
The Analysis: This is the core conflict. The IRS’s “source” rule ¹ collides directly with New York’s “marital property” law.⁵

Entity	Ruling / Action
IRS (Federal Rule)	The account is “solely-owned.” Tom must claim 100% of the $100,000 CLC. Sarah must claim $0. ¹
NY Family Court (State Law)	The CLC is a “marital asset”.⁵ Its value must be split “equitably” (e.g., 50/50).
Valuation Expert (CPA)	A CPA is hired. They testify the present value of the $100,000 tax shield (based on Tom’s high income) is $20,000.
Final Outcome (The “Offset”)	The divorce decree orders two things: (1) Tom is allocated 100% of the $100,000 CLC (to satisfy the IRS). (2) Sarah receives an equalizing payment of $10,000 (50% of the asset’s value) from Tom’s share of the house sale.

Scenario 3: The “Community Property Solution” (A Solely-Owned but Community-Funded Account)

The nine Community Property (CP) states have an elegant, built-in solution to this problem. (These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin ¹⁷).

The Spouses: Ana and Carlos, living in California (a Community Property state).
The Asset: They have a $100,000 CLC from an account titled only in Ana’s name. It was funded with her salary during the marriage.
The Analysis: In a CP state, all assets acquired during marriage are “community property,” legally owned 50/50 by the “community” (the couple as a single legal unit).⁸ This applies even if the asset is titled in only one spouse’s name.⁸
This solution reconciles state and federal law. When the IRS asks, “Who actually had the loss?” ¹, California law answers: “The community did.” Therefore, both Ana and Carlos “actually had the loss,” and the 50/50 split is “treated as such” by the IRS.²⁶

Rule	Division
IRS Rule	Who “actually had the loss?” ¹
State Law (CA)	The asset is “community property,” so the loss belongs to the “community.” ⁸ This means both spouses owned the loss 50/50.
Reconciliation	The state’s 50/50 “community” ownership satisfies the IRS “actually had the loss” rule.
Final Outcome	Ana claims a $50,000 CLC on her separate return. Carlos claims a $50,000 CLC on his separate return. ⁹

The Critical Exception: “Separate Property”

Be careful. This only applies to marital or community property. If an asset was “separate property,” the CLC it generates is also separate property.

Separate property includes assets you owned before the marriage ⁸, or assets you received as a gift or inheritance during the marriage.⁶

In this case, the CLC belongs 100% to the owner-spouse in all states. It is not a marital asset, and there is no 50/50 split or offset.⁶

The “Tax Return Autopsy”: A Step-by-Step Guide to Tracing Your CLC

You and your CPA must follow a specific, three-step process to find, calculate, and allocate the CLC.

Step 1: Find the Carryover on Your Last Joint Return

First, you must find the asset. Get a copy of your most recently filed joint Form 1040 tax return.

Look for Schedule D (Capital Gains and Losses).¹¹

Look at Line 16 (Total Net Gain or Loss). If this is a negative number larger than $3,000, you almost certainly have a CLC.³¹
Look at Line 21 (Deduction Limit). This will show the $3,000 deduction you used.¹²

The exact carryover amount is not on Schedule D itself. It is calculated on a separate worksheet.

Step 2: The Deep Dive – The “Capital Loss Carryover Worksheet”

To find the official amount to be carried over, you must find the “Capital Loss Carryover Worksheet” in the IRS Instructions for Schedule D.¹¹ Your tax software (like TurboTax) or CPA calculates this automatically.

This worksheet is confusing ¹⁰, but its job is simple. It takes your total loss from this year and subtracts the $3,000 you are using this year to find the remaining loss you can carry over to next year.

Here is a simplified breakdown of its purpose:

Part 1 (Lines 1-9): This section calculates your Short-Term Capital Loss Carryover. It takes your total short-term loss and subtracts the part you used up this year. The result on Line 9 is your official Short-Term CLC.
Part 2 (Lines 10-17): This section does the same thing for your Long-Term Capital Loss Carryover. It takes your total long-term loss and subtracts any remaining deduction. The result on Line 17 is your official Long-Term CLC.

The numbers on Line 9 and Line 17 are the only numbers the IRS will accept as your starting carryover. You cannot guess.³²

Step 3: The “Re-Computation” (The Forensic Accounting)

Step 2 gives you the total CLC. This final step, the “re-computation” ⁴, tells you how to split it.

This is the process we showed in Table 3. It is the most critical part of the entire process and must be done by a tax professional.²

Gather: Your CPA gathers all 1099-B and 1099-S forms (showing all sales) for the year the loss was created.
Trace: They go trade by trade, assigning each gain and loss to the spouse who owned the account it came from.
Simulate: They create two “mock” separate Schedule D forms, one for each spouse.
Calculate: They compute the individual net capital loss for each spouse, just as we did for “Tom” and “Sarah” in the example.
Allocate: The resulting individual net losses determine the pro-rata allocation of the total CLC.

This re-computation worksheet is your proof. It is the only document that will satisfy the IRS in an audit.

Do’s and Don’ts: How to Fight for Your Share (and Avoid Costly Mistakes)

Navigating this requires a two-front strategy: first, in your divorce negotiation, and second, on your tax return.

Do’s and Don’ts for Your Divorce Negotiation

This is where you win or lose the asset.

Do’s	Don’ts
DO hire a qualified CPA immediately to work with your lawyer. ⁶ Why: Your lawyer is a legal expert, not a tax expert. This is a complex tax issue.	DON’T forget about it. ⁶ Why: It is a “forgotten asset.” Forgetting it is like leaving thousands of dollars in a bank account for your ex to find.
DO demand the last 5 years of joint tax returns (Schedule D) and all 1099s. Why: This is the only “paper trail” that proves the CLC exists and allows your CPA to trace its origin.	DON’T assume a 50/50 split is allowed. ⁴ Why: This is the #1 mistake. The IRS “source” rule ¹ overrides any 50/50 assumption if the asset was solely-owned.
DO get a formal valuation of the CLC in an Equitable Distribution state. ⁵ Why: You cannot negotiate an “offset” if you don’t know the asset’s present cash value.	DON’T draft a settlement that defies the IRS. Why: A state judge cannot force the IRS to accept an illegal deduction. ³ The IRS rule is supreme in tax matters.
DO trade the CLC for other after-tax value. Why: The spouse who can best use the loss (high-income, has gains) should take it and “pay” the other spouse with a different asset of equal after-tax value. ²⁷	DON’T value the CLC at its face value. Why: A $100,000 CLC is not worth $100,000. It is worth its future tax savings, discounted to today’s dollars (e.g., $20,000). ⁵
DO be explicit in the settlement agreement. ²¹ Why: Vague language like “parties will split the loss” is unenforceable. You must use “offset” language (see Scenario 2).	DON’T confuse capital losses with other carryovers. Why: The rules for passive losses (PALs) ⁴ and S-Corp losses ³³ are completely different and mixing them up can destroy the asset’s value.

Do’s and Don’ts for Your First Post-Divorce Tax Return

This is where you execute the plan and stay out of trouble with the IRS.

Do’s	Don’ts
DO use the CPA’s “re-computation” worksheet as your evidence. Why: If you are audited, this worksheet is your only defense and proof of your allocation.	DON’T split the loss 50/50 on your tax return (unless it was a joint/CP asset). Why: Filing a return that contradicts the IRS “source” rule ¹ is an invitation for an audit.
DO attach a copy of the divorce decree only if it specifies the “offset” payment. Why: This explains to the IRS why you are claiming 100% of the deduction (because you paid your ex for their marital share).	DON’T “guess” at the carryover amount. ³² Why: The IRS knows your carryover amount from your last joint return. If your new return doesn’t match their number, it is an automatic red flag.
DO file the Schedule D (Form 1040) and the Capital Loss Carryover Worksheet. Why: You must file these forms to properly claim the loss and have it carry forward.	DON’T use the $3,000 deduction limit. Why: Your new filing status is “Single” or “Head of Household” (or “Married Filing Separately” ¹¹ for the year of divorce). Your annual deduction limit against ordinary income is $1,500 if filing MFS, and $3,000 if Single/HOH. ¹²
DO coordinate with your ex-spouse’s tax preparer. Why: The IRS will compare both of your returns. If your return shows a $100,000 CLC and your ex’s also shows a $50,000 CLC, it’s an obvious problem.	DON’T claim any portion of a CLC that came from your ex-spouse’s separate property (like an inheritance). Why: That loss is 100% theirs, is not a marital asset, and claiming it is improper. ⁶
DO use the same CPA who handled the divorce valuation. ¹⁸ Why: They already have all the data, the re-computation worksheet, and the valuation. They are the only ones who can file this correctly.	DON’T think the IRS will understand your “intent.” Why: The IRS is an automated system. It does not read your mind; it only reads the forms you file. ¹⁵

The Malpractice Trap: Biggest Mistakes That Cost Spouses Thousands

If not handled by experts, this asset can be easily destroyed. The “malpractice trap” is very real, and small-print tax rules can have massive consequences.

Common Mistakes and Their Direct Consequences

Mistake	The Painful Consequence
The “Vague Decree” Mistake: The divorce agreement simply says, “The parties will split the $100,000 CLC 50/50.”	The agreement is unenforceable against the IRS. The IRS “source” rule ¹ controls. The spouse who owned the account gets 100% of the deduction. The other spouse gets $0 and has to sue their ex (and maybe their lawyer) to get their share. ³
The “Forgot the Asset” Mistake: The CLC is never mentioned in the divorce settlement. ⁶	The asset is lost forever. The default IRS “source” rule ¹ automatically applies. The spouse whose name was on the account gets a massive financial windfall that should have been shared.
The “Wrong Rule” Mistake: Confusing a Capital Loss (CLC) with a Passive Activity Loss (PAL).	You (or your CPA) incorrectly apply the PAL rule ⁴ and add the CLC to the cost basis of an asset. The CLC vanishes. It is no longer a carryover and its value is permanently destroyed.
The “Lost S-Corp” Mistake: This is a brutal one. A spouse gives up 50% of their S-Corp stock and their share of suspended losses.	Unlike PALs, S-Corporation suspended losses cannot be added to basis.³³ The transferring spouse’s share of the suspended losses disappears forever. It does not transfer to the other spouse; it just vanishes. ³³
The “Wrong Value” Mistake: Trading a $100,000 CLC for a $100,000 bank account.	You just lost a huge amount of money. The $100,000 bank account is worth $100,000 in real cash. The $100,000 CLC is worth its present value tax savings (e.g., $20,000). You just traded $100k for $20k. ⁵

Not All “Carryovers” Are Created Equal: A Critical Comparison

A “Capital Loss Carryover” is just one of many types of tax attributes. You cannot treat them the same. Applying the rule for one to another is a disaster.

Tax Carryover Type	How It’s Divided in Divorce (Federal Rule)
Capital Loss (CLC)	“Traced” to the spouse who “actually had the loss” (who owned the asset). ¹
Net Operating Loss (NOL)	Also “traced” to the spouse who generated the loss. Requires a full re-computation of “mock” separate returns. ⁴
Passive Activity Loss (PAL)	CRITICAL DIFFERENCE: Does not transfer to the other spouse. The suspended losses are added to the tax basis of the asset being transferred. ⁴ The recipient spouse gets a higher-basis asset, which reduces their gain when they sell it.
S-Corp Suspended Loss	THE TRAP: Cannot be added to basis. The transferring spouse’s share of the suspended losses is permanently lost and benefits no one. ³³
Charitable Contribution	Also “traced” via a re-computation of what each spouse’s separate carryover would have been. ⁴

Pros and Cons: Negotiating the Capital Loss Carryover

Is it even worth the fight? For a $5,000 CLC, maybe not. For a $500,000 CLC, absolutely.

Pros (of actively negotiating the CLC)	Cons (and risks)
Pro: Finds “Hidden Money” ⁶ Why: This is an asset most people (and even some lawyers) forget. Identifying it is like finding a hidden bank account.	Con: High Expert Fees Why: You must hire a forensic CPA or valuation expert. ⁵ This costs money, which may be prohibitive if the CLC is small.
Pro: Creates a “Bargaining Chip” Why: You can trade the value of your CLC share for something you want more, like keeping the car or a specific piece of furniture.	Con: Complex & Abstract Valuation Why: Spouses will fight over the “true” value. ⁵ One CPA may say it’s worth $20k, another may say $40k, stalling negotiations.
*Pro: Achieves True* Equity ²⁷ Why:** A “50/50” split is not “fair” if one person gets a $100k tax-free bank account and the other gets a $100k taxable IRA. Factoring in tax assets like a CLC ensures a true equitable split.	Con: High Audit Risk Why: Splitting tax attributes is a known IRS audit trigger. If your CPA makes a mistake on the re-computation or filing, you could face an audit.
Pro: Tax-Efficient Planning ¹⁷ Why: It allows you to move the tax shield to the high-income spouse (who gets more value from it), while giving the low-income spouse cash (which they need more).	Con: Future Is Unknown Why: The valuation is based on guessing future tax rates and gains. ⁵ If the spouse who keeps the CLC never has gains, its real value was much lower (just $3k/year).
Pro: Avoids Future Lawsuits Why: A crystal-clear divorce decree that uses the “offset” method is final. A vague decree that is unenforceable guarantees you will be back in court.	Con: Emotional Friction Why: This is a complex, non-emotional asset. Arguing over “present value” and “discount rates” can feel abstract and hostile, adding friction to an already difficult process.

When the Court Steps In: The New York Case That Defined the CLC as “Marital Property”

This entire conflict was famously settled in a New York appellate court decision.⁵

The Facts: A husband had a very large capital loss carryover. The wife argued in divorce court that this CLC was a “marital asset” and she was entitled to half of its value.
The Ruling: The court agreed with the wife. It ruled that a CLC is “marital property” because it is a “thing of value arising out of the marital relationship.” ⁵
The Remedy: The court did not order the IRS to split the loss. It affirmed the “offset” solution. It awarded the wife a cash judgment of $70,000, which was the amount an expert testified the husband had already saved in taxes from using part of the loss. ⁵

This case law is the foundation for how these assets are handled in Equitable Distribution states. It confirms the CLC is a divisible asset and the correct remedy is a cash “offset”.²⁰

Frequently Asked Questions (FAQs)

How do I find my capital loss carryover amount?

Yes, you can find it. Look at your prior-year Schedule D (Form 1040) 31 and the official “Capital Loss Carryover Worksheet” in the IRS Schedule D instructions.11

Who gets to claim the capital loss carryover after a divorce?

No, it is not split 50/50 by default. The IRS rule says it belongs only to the spouse who “actually had the loss,” which means the person whose name was on the account.1

What happens in a community property state like California or Texas?

Yes, it is different. In these states, if the loss came from a “community property” asset, the carryover is generally split 50/50 between both spouses.8

My divorce decree says I get 50%, but the IRS says I can’t claim it. What do I do?

No, you cannot claim the deduction. The IRS rule overrides your decree.3 Your decree should have given you a cash “offset” for the value of the loss, not the deduction itself.

My divorce agreement doesn’t mention the capital loss carryover at all. Did I lose it?

Yes, you likely lost it. If it was not addressed, the default IRS “source” rule 1 applies, and the spouse who owned the asset gets 100% of this “forgotten asset”.6

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