Can an estate elect out of the spousal rollover to use up capital losses instead?

Yes. An estate can elect out of the automatic spousal rollover on a property-by-property basis, choosing instead to report the deemed disposition at fair market value on the deceased's terminal return. This is a deliberate planning move, most often used when the estate has capital losses — either from the terminal year itself or carried forward — that would otherwise go unused, since capital losses can generally only be applied against capital gains rather than other income.

By electing out of the rollover for a specific property with an accrued gain, the estate creates a taxable capital gain on the terminal return that the available losses can then offset, potentially reducing or eliminating tax that would otherwise be owed with no offsetting benefit. Without that election, the losses might expire unused if the estate has no other capital gains to absorb them, while the gain simply defers to whenever the spouse later disposes of the property.

Because this involves choosing which specific assets to elect out for, matching gains against available losses, and weighing the deferral benefit against locking in tax now, it's a calculation best done with an accountant reviewing the deceased's full capital gains and loss position before the terminal return is filed.