In any tax year, capital gains and capital losses are aggregated, and if the net is a capital gain, then the amount of the net gain is taxed in that year.
If, however, capital losses exceed capital gains, the losses can be deducted (even against ordinary income), but the annual limit on the amount that can be deducted is $3,000 per year ($1,500 if the filing status is Married Filing Separate).
Any unused capital loss is carried forward to be used in future years, until it is fully utilized. Remember, though, each year can use the capital loss carryforward to first eliminate any capital gain, plus up to $3,000 additional loss.
For example, lets say in Year 1, you sold stocks at a net loss of $20,000 You would be able to deduct $3,000 of the losses on the Year 1 tax return, and the $17,000 remaining would be a capital loss carried forward to Year 2. Now, assume in Year 2 you did not sell any stock - in which case you can use $3,000 of the carryforward, thereby leaving $14,000 carried forward to Year 3. In Year 3, you sold stocks at a gain of $5,000. In year 3, you would use $8,000 of the capital loss carryforward, as you can use $5,000 to offset the $5,000 gain generated in year 3, plus an additional $3,000. After using $8,000 of the carryforward in Year 3, you would then have $6,000 capital loss carryforward for year 4.
Under current lax law, you can carry forward capital losses indefinitely - i.e. until they have been fully used up.
And yes, TurboTax will continue to track any capital loss carryfowards you have from year to year in the software!
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