Turbo Tax Carrying Forward Capital loss of my deceased husband

[ggmauney62]

My husband passed away in 2022 and I am now filing our last joint return.  We have had a long term capital loss since 2011 that should end with this last joint filing because it was his loss from a business he had invested in.  In addition, I incurred some short term capital losses this year.  Turbo tax is deducting the usual $3,000, but is taking it from my short term loss, and then carrying forward both the short term and long term losses.  How do I tell Turbo tax to deduct the $3,000 from my long term loss, and carry forward just the short term loss in its entirety?

[ThomasM125]

You don't have a choice in how the losses are applied this year. Short term losses are netted against short term gains and the same for long term gains and losses and then the two are netted against each other. When you do next year's tax return, you can change the amount of the loss carryover to eliminate the losses that are no longer deductible, but you can't do anything about that on this year's tax return.

[ggmauney62]

Thank you for the quick response!  So can I carry forward the entire short term loss I incurred in 2022?   Also, why doesn't Turbo Tax automatically know not to carry forward the long term loss after my husband's death.  

[RobertB4444]

That's an old loss.  Even if it was entered into TurboTax back in 2011 as only your husband's I'm not sure the program would have recognized it as only his now.

But yes, the short term loss is yours to carry forward into 2023.  If the program carries the long term loss into 2023 you'll just have to manually zero it out.  It's annoying but not the worst.

Sorry for your loss.

@ggmauney62 

[ggmauney62]

Thank you so much for the advice and kind words.  I am grateful for all the help.

[Mike9241]

by law net short-term losses are used before net long-term losses. 

[ggmauney62]

Thank you for your response.  Can you direct me to this law or rule somewhere online?  I've been looking, but can't find it.  Everything I read says that you can only deduct long term gains against long term losses, and short term gains against short term losses.  I cannot find anything about what type of loss to use first when deducting $3000 against my income.  

[GeorgeM777]

Perhaps the best guidance is the form itself and the Capital Loss Carryover Worksheet.  Part I of Schedule D is completed first, and Part I relates to short-term capital losses.  Line 6 under Part 1 requires that you use the Capital Loss Carryover Worksheet to calculate your short-term capital loss carryover, if any.  When lines 1 - 6 under Part I have been completed, they are combined, and the resulting number is entered on line 7 as the net short-term capital gain/loss.  

After Part I of Schedule D is completed, then Part II of Schedule D is prepared which relates to long-term capital gains (losses).  The process for Part II is similar to the process for Part I and also requires use of the Capital Loss Carryover Worksheet.  

As noted in prior posts, the short-term losses and long-term losses are combined on line 16 of Schedule D, but if there were no long-term losses, your short-term losses would then be used to offset any capital gains and if applicable, ordinary income up to the limit.  

@ggmauney62 

[ggmauney62]

Thank you for the detailed response.  I am still not sure what to do for next year.  My Federal Carryover Worksheet shows a $3,000 reduction of my new short term capital loss, and an unchanged amount for the older long term capital loss.  I would have wanted the long term loss to be offset instead of the short term loss.  Also, I checked all the forms and turbo tax 2022 shows the long term loss to be my husband's.  So why is the long term loss on both the Capital Loss Carryover and Federal Carryover worksheets?  Would I be wrong to use the entire short term capital loss from this year, and not the reduced amount on my worksheets?  Either way, I plan to zero out the long term loss - something Turbo Tax should have done since I reported the death of my husband on this return.

[DianeW777]

This may be what you are already beginning to understand. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

A short-term capital loss carryover first offsets short-term capital gains incurred in the carryover year. If a net short- term capital loss results, this loss next offsets net long-term capital gains incurred in the carryover year, and then ordinary income, up to the $3,000 maximum.  As indicated by Mike9241 short term losses are used up first.

• IRS Tax Tip 2003-29
• IRS Publication 550

As far as your loss carryover from your deceased husband's business and if you filed jointly in the year of death, it would make sense the loss carryforward would continue with your return. That being said, you can choose your action about that, however the losses are used in a specific order as noted.

@ggmauney62