I am trying to determine whether a wife can use a husband’s NOLs to offset income from an inherited IRA in the year of death.

Husband died in 2021 with NOLs (from a business attributed to husband only, which were generated with husband’s separate property) and an IRA. The beneficiary of the IRA is considering disclaiming the IRA, in which case, the bank policy says it would go to the wife (since no contingent beneficiary is listed).

The wife could either accept it as an inherited IRA or roll it over into a spousal IRA (not sure this makes any difference since the plan would be to withdraw 100% in 2021).

I would like to confirm that if the IRA is disclaimed, goes to the wife (either as inherited or spousal rollover IRA), and then wife withdraws 100% this year (the year of death), if the NOLs can be used to offset that income even though the NOLs were generated by husband only and the income is following his death (but in the same year).

My understanding is yes, but I’ve received some conflicting advice.

I understand the NOLs cannot be carried forward by spouse, so it would have to be used this year or never.

They typically filed MFJ, except for 2019 which was MFS. They would obviously file MFJ this year if my above understanding is correct and they proceed.

If this works, I would also be interested in knowing if that also applies to California, or might such income be subject to CA tax as a result of CA having different rules here?

Thanks in advance for any input. It is much appreciated.