California law generally requires taxpayers to apply capital loss carryovers to offset capital gains in the current tax year. This is consistent with the federal rule, where capital losses are first applied to offset capital gains and then up to $3,000 of ordinary income if applicable.
Since you have no California tax liability due to low overall California income, the unused portion after offsetting the gains ($700 in your case) is saved for future years. Any remaining losses are then carried forward to future years.
