Monday, December 11, 2017



A capital loss carryover is the net amount of capital losses that aren't deductible for the current tax year but can be carried over into future tax years. You may be able to deduct capital losses up to the amount of your capital gains plus $3,000 ($1,500 if married filing separately). You may be able to use capital losses that exceed this limit in future years. You CANNOT deduct a loss from a sale or exchange between people related to you.

There are three main components to understanding how capital losses can carry over to future tax years.

·       Capital Losses are Used to Offset Capital Gains

Let's assume you have a $10,000 capital loss, and a $10,000 capital gain. These will offset each other on your tax return. In this situation, you would have no tax loss remaining to carry over to the next year. You cannot choose to pay tax on the gain this year and rollover the loss to the next year. Capital losses must first be used to offset any capital gains in the current tax year.

·         $3,000 of a Capital Loss Can Be Used to Offset Ordinary Income.
Basically, if you have losses left after you offset any capital gains in a given year and after you use up to $3,000 to offset other income, you're allowed to carry them over to the following year. There's no limit on how many years you can use capital loss carryovers. Capital gains, however, cannot be carried forward.

·         Capital Losses Can Be Carried Over Indefinitely
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.
It is generally preferable to use net losses to offset short-term gains or ordinary income and not to offset long-term gains with short-term losses. This is because both short-term gains and ordinary income are taxed at ordinary income tax rates, rather than the lower capital gains tax rate for long-term gains.
Capital Losses. For a corporation, capital losses are allowed in the current tax year only to the extent of capital gains. A net capital loss is carried back 3 years and forward up to 5 years as a short-term capital loss.

Keeping Track of Capital Loss Carryover Amounts

Capital gains and losses, and tax loss carry forwards are reported on IRS forms Schedule D, and for real estate or business investments, on Form 8949. When reported correctly these forms will help you keep track of any capital loss carryover.
The gain and loss rules apply primarily to publicly traded investments such as stocks, bonds, and mutual funds, and in some cases, to real estate holdings.