Could someone please walk me over how to put in the 3000 loss limit and then track it for the next many years? Because I have about $40,000 capital losses. And also, how does IRS track my losses for many years as I claim them?
Question: If I have $103,000 short-term capital losses in year 1, and carry over $100k of them to Year2, and:
Do I *have* to use my carryforwards to offset the long-term capital gains in Y2 ? In other words, could I elect not to apply those carryforwards, in the hope of applying them (more profitably) to short -term capital gains in Y3.
Assume marginal income tax rate 37% in all years. Obviously, the value of applying the carryforwards to offset short-term capital gains (equal to 37% of those gains), would make them more "valuable" than using them to offset long-term capital gains in Y2 (20%). I'd rather pay the 20% long-term rate and bank them.
If this is allowed, how do I achieve it in Turbotax?
You have to report the carryover every year until it's used up. You can't skip a year. Even if you don't report it on your return you have to reduce it by the 3,000 (1,500 MFS) when you carry it over to next year. You can't choose when to use it.
This is from the IRS Pub 550 page 66
"When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year. "
Here is pub 550… http://www.irs.gov/pub/irs-pdf/p550.pdf
If you have a negative AGI or negative taxable income it will show up on 1040 BUT it won't reduce the carryover to the next year.
Ouch! So, effectively, there's no advantage whatsoever to holding stocks for >1 year until after I use all of my captial loss carryforwards. Seems weird to me, b/c they require that like capital gain losses be used to offset like gains (thus requiring tracking of the two types of losses year-to-year). So (at least to that extent), they protect collection of a higher tax, but mandate loss of a more valuable tax credit as described. Thanks for you help!