My life insurance policy has lapsed and I have a taxable gain. Can I write off this taxable gain against my stock tax loss carry forward?
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Hi JS512,
If you have a capital gain carryover loss from a previous year, you can write off up to $3000 of any capital gain received for the current tax year.
My taxable gain is in 5 figures and my taxable loss is in 5 figures. Can I write this life insurance tax gain against my stock loss carry forward?
That does not quite answer my situation. To clarify, my taxable gain is in 5 figures and my taxable loss is in 5 figures. Can I write this life insurance tax gain against my stock loss carry forward?
Thank you for contacting TurboTax Live! We see that you had a question - about your Life Insurance Policy that has lapsed during the 2021 tax year. We are sorry that you experienced this lapse, and we hope that everything is OK with you and your family!
We thank you for your question! We also thank you for the opportunity to respond to your question!
We see that you are going to have a taxable gain for the 2021 tax year, and based on the lapse of this insurance. We are wondering how you became privy to this information - that this will cause a taxable gain - as life insurance companies have until next January/February to provide you with a confirming 1099 - concerning the lapse of this policy.
Your question specifically was - "Can I write off this taxable gain against my stock tax loss carry forward?"
The answer is: "It Depends!" . . . based on whether the taxable gain - as related to your policy lapse - is classified as a capital gain, or ordinary gain. Since the time has not yet come for the life insurance company to provide you with the confirming 1099 - it is difficult to speculate, at best!
Nonetheless - and with the assumption that the life insurance company has already provided you with confirmation via a telephone call or email correspondence, that the lapse of the policy - does in fact, trigger a capital gain (and not ordinary income), here are the rules concerning what you can offset - in terms of your previous capital loss carryforward, against the capital gain (once you confirm that the life insurance company is classifying the lapse as a capital gain - for tax purposes), and as follows:
In terms of what is available to carry forward from the previous year's tax return filings - we ask you to please look on last year's (2020 tax year) Schedule D, specifically Lines 16 and 21.
If the Line 16 loss amount is greater than the number shown on Line 21 (and we need you - for this exercise - to pretend that they are both positive numbers), you should be getting a capital loss carryover on this year's return for the 2021 tax year.
If you transferred data from last year's TurboTax Live! tax return filings, your capital loss carryovers are already accounted for by TurboTax Live!. We just need you to confirm the number - and confirm that the number was, in fact, transferred over!!
Carryover losses on your investments are first used to offset the current year capital gains if any. You can deduct up to $3,000 in capital losses ($1,500 if you're married filing separately).
Losses beyond that amount can be deducted on future returns as a capital loss carryover until the loss is all used up.
For example, if your net capital loss in 2020 was $7,000 and you're filing as single, if you have no capital gains for 2021 and 2022, you can deduct $3,000 of the loss on your 2020 return, $3,000 on your 2021 return, and the remaining $1,000 on your 2022 return.
Unfortunately, you can't pick and choose which future tax year(s) you wish to apply your carryover to.
Carryovers from this year's return must be applied to next year's return.
If you transferred last year's return over, we automatically include the carryovers.
However, it's always a good idea to keep a written record of your expected carryover amounts to compare against your return.
A capital gain is what the tax law calls the profit you receive when you sell a capital asset, which is property such as stocks, bonds, mutual fund shares and real estate. This does not include your primary residence. Special rules apply to those sales.
There's a very big difference. The tax law divides capital gains into two different classes determined by the calendar.
That's the period you own the property before you sell it. When figuring the holding period, the day you buy property does not count, but the day you sell it does.
So, if you bought a stock on April 15, 2020, your holding period began on April 16, 2019. Thus, April 15, 2021 would mark one year of ownership for tax purposes.
The tax rate you pay in 2021 depends on whether your gain is short-term or long-term.
The good news is, when you use TurboTax Premier, we'll do the hard work for you to help ensure that your taxes are calculated accurately.
A capital loss is a loss on the sale of a capital asset such as a stock, bond, mutual fund or real estate. As with capital gains, capital losses are divided by the calendar into short- and long-term losses.
Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.
For example,
We trust and hope that the information contained herein - responds to your question to your satisfaction.
If you have additional questions, you can always schedule a call back or Chat session with one of our Live! Tax Experts.
Thank you for contacting TurboTax Live!
We hope you are able to use this information, options and suggestions in your tax return filings!! Cheers!
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rda245
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JS512
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