You can deduct $3000 of the carryover loss against ordinary income this year, and the balance against the $40,000 gain this year. The remaining $2000 loss from 2018 can be carried over to the 2020 tax year.
Carryover losses on your investments are first used to offset the current year capital gains if any. You can deduct up to $3,000 in capital losses ($1,500 if you're married filing separately). Losses beyond that amount can be deducted on future returns as a capital loss carryover until the loss is all used up.
For example, if your net capital loss in 2017 was $7,000 and you're filing as single, if you have no capital gains for 2018 and 2019, you can deduct $3,000 of the loss on your 2017 return, $3,000 on your 2018 return, and the remaining $1,000 on your 2019 return.
Unfortunately, you can't pick and choose which future tax year(s) you wish to apply your carryover to. Carryovers from this year's return must be applied to next year's return.
If you transferred last year's return over, we automatically include the carryovers. However, it's always a good idea to keep a written record of your expected carryover amounts to compare against your return.
Answers are correct to the best of my ability but do not constitute legal or tax advice.
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