Say ...

If have $10k loss in stock in 2007. In 2008, I was able to claim $3000 as capital loss towards my taxable income.

So, I now have $7000 remaining that rolled over from that year. And in this I should be able to claim another $3000 as capital loss towards my taxable income, right?

But if this year, I have a capital gain of $2000, then how are things going to be calculated?

And in theory, I can keep rolling over the remaining of the original capital loss and deduct $3000 from it until it becomes $0 if I don't have another capital gain for time being?

 

Your capital losses carried over from prior tax years are used to offset current and future capital gains. So in your example, the $3000 of your carryover loss that you are allowed to claim this year offsets the $2000 Capital gain from this year, leaving you with a net $1000 Capital LOSS for this tax year.

Andrew

 

thanks

so, in continuation of the scenario, my original loss (the original $10k loss) will now have $4000?

but what if in the this year, instead of a $2k gain, i gained $4k. after the $3k loss claim carried over from previous year, the $1k extra is taxable incoming, right? but does the original carried over loss be deducted an extra $1k because of the gain ($4k instead of $3k)?

 

Yes, you've got it.


You can use up the whole $10000 loss to offset taxable gains at a maximum of $3000/yr. So you will use up all $10000 eventually, regardless of what your taxable gains are that year.
year 1- $3000
year 2- $3000
year 3- $3000
year 4- $1000

 

I think you might have it wrong aklucsarits. You say that you can use a capital loss from a previous year "to offset taxable gains at a maximum of $3000/yr." A more correct statement would be that you can claim a capital loss of up to $3000/yr after you take the capital gain realized in the current year and subtract any losses from that same year or carry over losses from previous years.

So if the original poster gained $2k this year the calculation would go like this:

2007
$10k loss for 2007.
$3k loss claimed, $7k loss carryover
2008
$0 gain/loss for 2008 - $7k carryover = $7k loss.
$3k loss claimed, $4k loss carryover
2009
$2k gain for 2009 - $4k carryover = $2k loss.
$2k loss claimed, 0 carryover.

If the original poster gained $4k this year the calculation would go like this:

2007
$10k loss for 2007.
$3k loss claimed, $7k loss carryover
2008
$0 gain/loss for 2008 - $7k carryover = $7k loss.
$3k loss claimed, $4k loss carryover
2009
$4k gain for 2009 - $4k carryover = $0 gain/loss.
$0 gain/loss claimed.

 

Can anyone else confirm?

 

My recollection is the same as yours: you can use the carryover loss to offset gains, plus up to an additional $3,000 loss each year till the carryover is used up.

I also thought that there was a limit on the duration of the carryover; e.g., you can only use it for up to seven years after the actual loss, then it's gone.

Bear in mind that these are memories from tax accounting that are about 30 years old; some of the details have undoubtedly changed, and I may be remembering it incorrectly to begin with.

 

Yes, that's what I was trying to say. Sorry if I was not more clear.

^^^ This part I do not believe is correct, because in your example, you would only get a $3000 capital loss offset in 2009, not $4000. So you would have a $3000 offset from the remaining $4000 carryover in 2009, and then another $1000 offset left for 2010 tax year.


Here's the rule and a worksheet:
http://www.irs.gov/publications/p550/ch04....ublink100010729


The $3000/yr carry over from the initial loss does not expire. If I lost $1,000,000 this year, I could carry over $3000 of losses every year until I die.

Andrew

 

Andrew,

For the part you did not believe was correct-- It is correct. Here is where i think the confusion is coming from:

I think the part of IRS Pub.550 that you are getting hung up on is "You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit."

When it talks about "reducing your income dollar for dollar, up to the 3,000 limit" it is refering to ordinary income, not capital gain income.

You may use your capital loss carryforwards to eliminate your capital gains all the way down to -0-. Then, "You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit."

And for what it's worth, those "rules" on the IRS web site are often not the whole truth but rather the interpretation of the tax code that is most beneficial to the govt. If you're ever researching something and the IRS website seems to indicate you cannot do something, check the code, regs and court cases because you may find support for your idea that is not listed on the IRS site.

 

This is not technically correct either. You carry over the entire 1m and then, assuming you never had another capital gain, you could deduct 3,000 of capital losses every year until you die.