So I’m trying to file my 2023 return. My and my wife’s sole income came from short-term capital gains but falls short of the standard deduction limit for married-filing-jointly. We also have a $25,000 capital-loss carryover from prior years. It’s my understanding that the carry forward is only applied to taxable income after all other deductions are applied (so in our case my understanding is that our taxable income would be zero after standard deduction). Meaning we should be able to carryover the entire $25,000 from our previous years into next years return? Is that correct or no?
Secondly, in situations when the carryover loss is appropriately applied, it was my understanding that there is a $3000/year limit to which it can be applied. (For example: In a prior year, I had $77k in capital gains and only $3k of my $28k carryover at the time, was deducted by prior CPA who specialized in capital gains tax law). This year,when I originally entered my info into the program, it seemed to show that it was trying to use $9-$10k of my existing carryover to offset the gains. Im so confused on where/how the $3k IRS limit comes into play within the program.
*Update so far- I am attempting to enter my capital gains into form 4797 as business property sold- which is how it has been done in prior years since I have previously elected section 475 MTM accounting. This seems to have resolved the larger than desired carryover into 2024, but appears it is still using $3k of carryover to offset income that I believe shouldn't qualify as taxable income since the standard deduction would reduce our tax liability to zero
