Capital losses carry forward ?

Forum|Forum|6 years ago
June 7, 2019
8 replies
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I have a question on capital gains and losses.

Lets consider a scenario wherein I incurred short term capital losses of $20,000 earlier in 2013. Now I currently hold stocks which if I sell before end of this year will net to short term capital gains of $10,000. If I was to sell the stocks in 2014 instead of 2013, will the capital losses carry forward help me offset the gains so that I dont need to pay taxes on the gains of $10,000 in 2014 ?

Or am I only allowed to carry forward $3000 per year of capital losses ? If I can only carry forward losses of $3000 to next year then I would rather sell the stocks before end of this year so that capital losses from earlier this year would offset the gains and I wont need to pay taxes on them. Please advise.

Best answer by bwa

Your answer is somewhere between your two scenarios. You can only carried forward any loss over $3,000, not carry over $3,000. For example, assuming you sold the gains in 2014:

You would claim your $20,000 losses in 2013. However, only $3,000 would be deductible.
The remaining $17,000 in losses would carry forward to 2014. With $10,000 in 2014 gains and $17,000 in carry forward losses, you would have a net 2014 loss of $7,000. Of that, you would get the tax benefit of $3,000 and carry forward the excess $4,000 to 2015.

Any excess capital loss can be carried over until you die, then it is lost and of no benefit to your estate or heirs.

purple33frog1

do i need to take a stock loss ,i would rather not

TheArabianKnightMC

To anyone reading this now: it is absolutely foolish not to report losses.

Hal_Al

Employee

As the others indicate, it is not optional. You have to report the sale and the resultant capital loss on this year's tax return.
Even if you are exempt from filing a return this year (income under the filing threshold) you must track (re-calculate) the capital loss carry forward as if you had filed a return.

purple33frog1

just checking to be sure,i was told by a tax preparer in town that either you use your loss this tax yr or you don't use it at all

Hal_Al

Employee

What he said is basically true. What you must do is report it this year. Whether you use the whole loss this year depends on the details. See Jerry2000's answer below.

bwaAnswer

Employee

Your answer is somewhere between your two scenarios. You can only carried forward any loss over $3,000, not carry over $3,000. For example, assuming you sold the gains in 2014:

You would claim your $20,000 losses in 2013. However, only $3,000 would be deductible.
The remaining $17,000 in losses would carry forward to 2014. With $10,000 in 2014 gains and $17,000 in carry forward losses, you would have a net 2014 loss of $7,000. Of that, you would get the tax benefit of $3,000 and carry forward the excess $4,000 to 2015.

Any excess capital loss can be carried over until you die, then it is lost and of no benefit to your estate or heirs.

bhavik2uAuthor

Follow up question: Will I need to keep remembering how much losses to carry forward or is there a box in the tax form that helps keep track of how much losses are there to be carried forward to next year ? Thanks!

Celery63

The rules on capital loss carryover are very simple,

If you have a capital loss carryover, it can be applied to offset current year capital gains without limit. If there is still carryover capital loss left after offsetting all current year capital gains, then up to $3,000 of the remaining carryover loss will be applied to offset ordinary income. Any remaining loss will be carried over to the next year.

There is no limit to the amount of carryover loss that can be used to offset current year capital gains. The limit is on the amount of carryover loss that can be used to offset ordinary income - that limit is $3,000 per year.

bobwestcott

Can I choose to have capital loss ONLY offset current year capital gains but NOT have any excess capital loss offset current year ordinary income? In other words, do I always have to "use" at least $3,000 offsetting ordinary income? I would rather save it for the future.

p-ejtemaei

Could someone please walk me over how to put in the 3000 loss limit and then track it for the next many years? Because I have about $40,000 capital losses. And also, how does IRS track my losses for many years as I claim them?

Thanks,

Pooya

Hal_Al

Employee

The IRS doesn't track it, yet, that I know of.
TurboTax will prepare a capital loss carryover worksheet every year.

If you have a net $40K loss; you put -$3000 on line 13 of form 1040 and carry over $37K to next year.
Next year you reduce the  $37K by any capital gains (both long & short term) you realize in 2014, put another $3K on line 13 and carry the balance to the following year.
Example: you have $10k gains in 2014
   37,000 capital loss carried forward from 2013
- 10,000 capital gains in 2014
= 27,000 net capital loss for 2014
   - 3,000 allowed deduction
=  24,000 carried over to 2015
All of that will be shown on Schedule D and the worksheet