Capital losses carry forward ?

[bhavik2u]

I have a question on capital gains and losses.

 Lets consider a scenario wherein I incurred short term capital losses of $20,000 earlier in 2013. Now I currently hold stocks which if I sell before end of this year will net to short term capital gains of $10,000. If I was to sell the stocks in 2014 instead of 2013, will the capital losses carry forward help me offset the gains so that I dont need to pay taxes on the gains of $10,000 in 2014 ? 

Or am I only allowed to carry forward $3000 per year of capital losses ? If I can only carry forward losses of $3000 to next year then I would rather sell the stocks before end of this year so that capital losses from earlier this year would offset the gains and I wont need to pay taxes on them. Please advise.

[purple33frog1]

do i need to take a stock loss ,i would rather not

[Hal_Al]

As the others indicate, it is not optional. You have to report the sale and the resultant capital loss on this year's tax return.
Even if you are exempt from filing a return this year (income under the filing threshold) you must track (re-calculate) the capital loss carry forward as if you had filed a return.

[purple33frog1]

just checking to be sure,i was told by a tax preparer in town that either you use your loss this tax yr or you don't use it at all

[Hal_Al]

What he said is basically true.  What you must do  is report it this year. Whether you use the whole loss this year depends on the details. See Jerry2000's answer below.

[bwa · Accepted solution]

Your answer is somewhere between your two scenarios.  You can only carried forward any loss over $3,000, not carry over $3,000.  For example, assuming you sold the gains in 2014:

• You would claim your $20,000 losses in 2013.  However, only $3,000 would be deductible.
• The remaining $17,000 in losses would carry forward to 2014.  With $10,000 in 2014 gains and $17,000 in carry forward losses, you would have a net 2014 loss of $7,000.  Of that, you would get the tax benefit of $3,000 and carry forward the excess $4,000 to 2015.

Any excess capital loss can be carried over until you die, then it is lost and of no benefit to your estate or heirs.

[bhavik2u]

Follow up question: Will I need to keep remembering how much losses to carry forward or is there a box in the tax form that helps keep track of how much losses are there to be carried forward to next year ? Thanks!

[bwa]

Surprisingly, there is no box that shows the carry forward so it doesn't hurt to keep a pencil notation of it yourself.  if you use Turbotax each year, it is one of the items that automatically carries forward.

[bhavik2u]

Thanks bwa! Great answers!

[Hal_Al]

Even though there is no formal IRS form that shows the capital loss carry forward, TurboTax will produce a capital loss carry forward work sheet for your records.

In addition, the difference between lines 21 and 16 on schedule D is your capital loss carry forward.

[dedrastonelindse]

How do I get a Schedule D from Turbo Tax?

[kp755q]

How do I return to Investment income on my Turbo return without unanswering all my data after that

[jerry2000]

The rules on capital loss carryover are very simple,

If you have a capital loss carryover, it can be applied to offset current year capital gains without limit. If there is still carryover capital loss left after offsetting all current year capital gains, then up to $3,000 of the remaining carryover loss will be applied to offset ordinary income. Any remaining loss will be carried over to the next year.

There is no limit to the amount of carryover loss that can be used to offset current year capital gains. The limit is on the amount of carryover loss that can be used to offset ordinary income - that limit is $3,000 per year.

[bobwestcott]

Can I choose to have capital loss ONLY offset current year capital gains but NOT have any excess capital loss offset current year ordinary income? In other words, do I always have to "use" at least $3,000 offsetting ordinary income? I would rather save it for the future.

[Hal_Al]

Yes, you have to use it, up to the  $3000. saving it for later is not allowed.