TT 2016 is messing up capital gains & carryover losses by applying all past carryover losses & resulting in a huge refund (wrong). Have you seen this type of problem?

[TaxGuyBill]

Can you clarify what is is doing?

Do you have any gains?  The losses first offset all gains (there is not a limit), then you are allowed to claim up to a $3000 loss.

Are you sure you mean "capital loss carryover", rather than a Passive Loss Carryover (usually from a rental property)?  Or a Net Operating Loss (total income was negative on a prior year tax return)?

[aa1234aa]

Clarification: This is about Schedule D and Form 8949. For 8949 (sell stocks) shows a gain much more than the 3000 allowable loss. My accumulated carryover loss over many years is in 10 times the gain. The net loss in Schedule D ends up being my "accumulated carryover loss" minus the current year's gains. Maybe it has something to do with the juggling of short and long term losses/gains. I ran some test cases: (1) Said I have zero carryover losses and the result seems correct (or more like what I expected) by using the full amount of my gains on form 1040.  (2) Said I have -3000 carryover from the previous year and the results were identical to zero carryover (i.e. the -3000 was not applied).  If I use the TT step-by-step method, the results are wrong - I'm not getting a refund that's half of all the taxes I paid last year. This problem is not surprising. Not a year has gone by that I didn't have to override TT manually to get a correct return.  Anyone who just "believes" the numbers generated by TT (or any tax software) is taking a risk.

[TaxGuyBill]

If I'm understanding your comment correctly, TurboTax is doing it correctly.  The losses are NOT limited to $3000 per year.  The losses offset ALL of the gains, PLUS you can use an 'extra' $3000.

Does Line 13 of your Form 1040 show negative 3000?  If so, it seems correct to me.

While I do agree that TurboTax has some 'bugs' and errors, you need to be careful about overriding because it is USUALLY correct, and your understanding of things could be wrong.

[TaxGuyBill]

I clarified my comment above to ask about Line 13 of your Form 1040.

[aa1234aa]

Response to Line 13 of 1040: In my original return (where carryover losses were taken from my previous year's return), Line 13 of Form 1040 was negative 3000.  But what you're saying isn't exactly correct or doesn't apply to my situation. I had a NET capital gain (that is, for the current year, after my losses were subtracted from my gains, I was left with a net gain).  This net gain should be added to line 13 of Form 1040 IF I had zero carryover losses from the previous years.  But, since I do have carryover losses from previous years, this year's income can be reduced by up to 3000 of losses remaining from previous years (the carryover loss). So, my expectation is that if, for example, I had $10000 in net gains, then my line 13 on Form 1040 should show a positive $7000 (10000 minus 3000). And that's not the case. See my test cases above.  Another clue that something is wrong is that Part III of Schedule D is empty (that's where line 13 is computed). I'll wait for some TT updates and try again later, but if all else fails I can do my taxes manually - it's not rocket science.

[TaxGuyBill]

You are misunderstanding how things work.  The carryover losses are used to determine if you have a NET gain or loss this year.  Look at Schedule D, how Lines 6 and 14 are used in the calculation to determine the current year gain or loss.  As I said before, the losses are NOT limited to $3000 per year.  The losses offset ALL of the gains, PLUS you can use an 'extra' $3000.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040sd.pdf">https://www.irs.gov/pub/irs-pdf/f1040sd.pdf</a>

This quote from Fidelity puts it clearly: "In the following year, the loss carried forward would first be used to offset potential capital gains. If capital losses still exceed capital gains, the filer can claim up to $3,000 as a loss".
<a rel="nofollow" target="_blank" href="https://www.fidelity.com/mymoney/how-do-capital-gains-and-losses-carry-over">https://www.fidelity.co...>


If you have been overriding this type of thing in previous years, your prior tax returns are probably wrong, and you need to get them corrected.  If that is the case, it is possible that your carryover losses should have already been used up in prior years and you would not have any carryovers to this year.  You may want to seek the help of a tax professional to get things straightened out.

[aa1234aa]

Thank you for trying to respond to my issue. What you are saying is EXACTLY what I said.  But perhaps you didn't read my last response carefully. I should get a commendation from the IRS for wanting to pay more taxes!

[TaxGuyBill]

I think you are still misunderstanding me, and how things work.  Let's do an example, and look at the Lines on Schedule D for how it works.  For simplicity, let's say that everything is long-term gains and losses.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040sd.pdf">https://www.irs.gov/pub/irs-pdf/f1040sd.pdf</a>

1) In 2016 you sold stocks that resulted in $20,000 in gains, and $10,000 in losses (which results in $10,000 in gains reported on Lines 8-10 of Schedule D).

2) Your carryover losses from 2015 are $30,000 (that goes on Line 14 of Schedule D).

3) The result is Line 15 of Schedule D will show negative $20,000.  RIGHT?

In other words, the $30,000 carryover loss completely cancels out the 2016 net $10,000 gains.


When you bring to that negative $20,000 loss to page 2 of Schedule D, Line 21 will allow negative $3000 to go on Form 1040.
The proper result is that Line 13 of your Form 1040 will show negative $3000.

[aa1234aa]

Thank you for your example. That clarified what you were saying. My misunderstanding seems to be not applying the full amount of the carryover loss to the current gains. I also came across another response to a similar question that was asked on these pages in 2014 (<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1915181-capital-losses-carry-forward">https://ttlc.intuit.com/ques....

[TaxGuyBill · Accepted solution]

Great, I'm glad we figured it out.