Why is Turbo tax using my prior year interest expense carryover to offset my $2,000 in bank interest when the standard deduction should apply? I have no other income.

[Aaron37]

Is there a way to force Turbo tax to use the standard deduction to cover my only income of $2,000 bank interest instead of Turbo tax pulling from my prior year interest expense carryover asset?  I want to keep the carry over asset and the standard deduction more than covers my income this year.  My itemized deductions are even higher than the standard deduction but Turbo tax won’t let me override the standard deduction and itemize instead. 

[zomboo]

You can force Turbo Tax to take the standard deduction. Just complete the Deductions & Credits section and then there should be an option to switch to the Standard Deduction. I don't, however, believe this will stop the deduction of $2,000 bank interest income from being applied to you investment interest carry over on Form 4952. That is a year-to-year thing. If you say you have no carry over from 2022, that will likely kill your carry over to future years. I, however, am not a tax expert so you you also get their advice.

[DawnC]

No.  The carryover (Line 7) is applied before the standard or itemized deduction (Line 12).  You can't keep the carryover whether you take the standard or itemized deductions.   Instructions are below to switch from standard to itemized.  

How to switch from standard to itemized.   How the capital loss carryover works:

You have a $10K carryover from last year.  If it's more than $3,000, then you can offset $3,000 of your other, ordinary income this year and carry over the balance to next year. If you don't have any other income to offset this year, the entire $10,000 would carry over to next year.     

[Aaron37]

Thank you for the response.  My question is actually about how Turbo tax treats the carryover from my "Investment Interest Expense Deduction" Form 4952 from last year and this year and not about capital investment loss carry over.  I expected Turbo tax to apply my standard deduction, which is higher than my interest income this year (and which is my only source of income) so that the standard deduction would be applied first instead of impacting my Investment Interest Expense carryover first.  

Would your answer change or remain the same? Many thanks!

[Aaron37]

Thank you for the response.  My question is actually about how Turbo tax treats the carryover from my "Investment Interest Expense Deduction" Form 4952 from last year and this year and not about capital investment loss carry over.  I expected Turbo tax to apply my standard deduction, which is higher than my interest income this year (and which is my only source of income) so that the standard deduction would be applied first instead of impacting my Investment Interest Expense carryover first.  

Would your answer change or remain the same? Many thanks!

[RobertB4444]

Investment interest expense is used first and then the standard deduction.  Sorry.  It plays.

However, if the only income you have for the year is $2000 in bank interest you are not required to file a tax return.

@Aaron37 

[Opus 17]

@Aaron37 

In general: You have to apply the investment interest carryover every year that you could use it.  You can't "save it" to use in another year just because you don't benefit this year.  

In specific: is your interest income from the same investment where you are reporting an interest expense?  If they are two different investments, then something wrong might be happening.

[zomboo]

Investment interest is deductible on schedule A line 9 up to the amount of any interest income reported on 1040 line 2b. The interest earned does have to be in conjunction with the investment expense. Excess investment interest is carried forward. I don't think you can take deduct interest paid on investments on top of the standard deduction. Also, if you do not file taxes, you will lose ability to carry forward any remaining investment interest to 2024 and beyond.