PURPOSE: This rule sets forth the method to be used by married persons filing joint federal income tax returns in allocating capital losses between the spouses for Missouri income tax purposes.

PUBLISHER’S NOTE: The secretary of state has determined that the publication of the entire text of the material which is incorporated by reference as a portion of this rule would be unduly cumbersome or expensive. This material as incorporated by reference in this rule shall be maintained by the agency at its headquarters and shall be made available to the public for inspection and copying at no more than the actual cost of reproduction. This note applies only to the reference material. The entire text of the rule is printed here.

1. (1) The following general rules have been issued by the Missouri Department of Revenue and should be used in arriving at Missouri adjusted gross income (MAGI) of each spouse in situations involving losses from sale or exchange of capital assets, but only if the spouses file a joint federal income tax return for the year.

2. (2) Losses: General Rule. If the losses from the sale or exchange of capital assets exceed the net gains from the sales, so a loss is reported on Form 1040, then, subject to the limitation provided for in Internal Revenue Code (IRC) Section 1211, allocate the excess to the spouse responsible for the excess. (For examples 1-3 below, the Section 1211 limitation is $3,000.) If both spouses are responsible for the excess, then allocate the excess, subject to IRC Section 1211 limitation, between the spouses on a pro rata basis.

   1. (A) Example No. 1: Assume the following facts on the joint federal income tax return for 2017: Spouse 1 Spouse 2 Wages $10,000 $5,000 Gain (loss) ($2,000) ($3,000) Section 1211 limitation Federal adjusted gross income (FAGI)

Missouri Answer: The amount of the excess is $5,000 but, because of the limitation of IRC Section 1211, the deductibility of the loss is limited to $3,000. Since both spouses are responsible for the excess, then allocate the $3,000 on a pro rata basis, that is—Spouse 1 (2/5 x 3,000) and Spouse 2 (3/5 x 3,000).

MAGI is therefore— Spouse 1 Wages $10,000 Section 1211 deduction ($1,200) MAGI $8,800

1. (B) Example No. 2: Assume the following facts on the joint federal income tax return for 2017: Spouse 1 Wages $10,000 Short-term Gain (loss) ($200) Long-term Gain (loss) ($8,000) Section 1211 limitation Federal adjusted gross income Missouri Answer: The amount of the excess is $5,500 but, because of the limitation of IRC Section 1211, the deductibility of the loss is limited to $3,000. The $5,500 excess includes $5,200 for Spouse 1 and $300 for Spouse 2. Since both spouses are responsible for the excess, then allocate the $3,000 on a pro rata basis, that is, Spouse 1 (5,200/5,500 x 3,000) and Spouse 2 (300/5,500 x 3,000).

MAGI is therefore— Spouse 1 Wages $10,000 Section 1211 deduction ($2,850) MAGI $7,150

1. (C) Example No. 3: Assume the following facts on the joint federal income tax return for 2017: Spouse 1 Wages $10,000 Short-term Gain (loss) $1,000 Long-term Gain (loss) ($8,000) Section 1211 limitation FAGI Missouri Answer: Since there are no net short-term losses, all of the IRC Section 1211 limitation of $3,000 should be allocated from excess long-term losses. Since Spouse 1 is responsible for the excess, the entire amount of the limitation is allocated to Spouse 1. $15,000 ($5,000)

   ($3,000)

Spouse 2 $5,000 ($1,800) $3,200

Spouse 2 $5,000 ($300)

($3,000)

Spouse 2 $5,000

($150) $4,850

Spouse 2 $5,000

($1,000)

$3,000 Total

$12,000

Total

$12,000

Total $15,000 ($500)

($5,000) ($3,000) $12,000

Total

$12,000

Total $15,000

$0

($5,000)

($3,000) $12,000 MAGI is therefore: Spouse 1 Spouse 2 Total Wages $10,000 $5,000 Section 1211 deduction ($3,000) $0 MAGI $7,000 $5,000 $12,000

AUTHORITY: section 143.961, RSMo 2016.* This rule was previously filed as Income Tax Release 73-11, Jan. 29, 1974, effective Feb. 8, 1974. Amended: Filed Oct. 2, 2018, effective April 30, 2019. *Original authority: 143.961, RSMo 1972.