Hi, I had to file a 1040X for 2017 with an accountant where I forgot to claim losses on "Gains and Losses from Section 1256" in Turbotax in that year. This has been filed several months ago.
My question is... In order for me to submit my 2020 taxes which will include the amended 1040X form, should I simply add a new form 6781 (Gains and Losses from Section 1256) to this years return which accounts for the additional unreported losses from 2017?
So in 2020 I will have two 1256 forms (one for 2020 and one for 2017)?
I'm surprised that the accountant didn't inform you that you would need to amend 2018/2019 if you had a 2017 capital loss carryover. the 1256 losses, reported on form 6781, carry to schedule D. only then can you determine if you have a capital loss carryover. you would if there's a loss on line 16 of schedule D that exceeds the loss reported on line 21
if you have a CLCO from 2017 you must determine the components - short-term CLCO and/or long-term CLCO by following these rules.
You're allowed to use an unlimited amount of capital losses to offset any capital gains that you incur in the same year. First, you'll separate your gains and losses by holding period, with those on investments you owned for longer than a year in the long-term category and those on investments you owned for a year or less in the short-term category.
If you have a gain in one category and a loss in the other, you can then use the losses to offset the gains. Any net amount remaining stays in its existing category. If you have losses in both categories, then you'll keep them in their respective places in applying the next step.
The $3,000 rule
Once you've offset all your capital gains, you can use an additional $3,000 of capital losses to offset other types of income, such as wages and salaries or investment income. If your losses amount to less than $3,000, then you simply take your remaining losses and have nothing left to carry over.
If your losses exceed $3,000, then you have to look further. If you have short-term capital losses of $3,000 or more, then you'll take all $3,000 from the short-term category. Your carryover amount will therefore be any remaining short-term losses along with all your long-term losses. If you have less in short-term losses, then first use any short-term losses you do have, and then take long-term losses to take you up to the $3,000 total. Any remaining long-term losses in that situation are eligible to carry over.
once your capital loss carryover, if any from 2017, is calculated, you must carry it to 2018, you can't skip years and carry a 2017 capital loss carryover directly to 2020. in 2018 you calculate like above. any remaining capital loss is carried to 2019. any remaining from 2019 is carried to 2020. so if you have CLCO from those years you must amend 2018/2019
there will only one form 6781 for 2020 which will only show 2020 activity. as stated the 1256 losses become part of capital losses. they are only reflected on schedule D not form 6781
Thanks Mike, I believe because I already claimed my maximum 3,000 from 2017-2019 it makes sense why he did it this way. Any suggestions?
This is the accountants statement when I had him amend 2017:
I just wanted you to know that there is a good reason to Amend the 2017 return, but that it will not yield an immediate Refund. The Amendment would be to claim additional Losses, but you have already taken the maximum loss for the 2017, 2018 & 2019 year. The reason it still makes sense is that you can still carry the balance forward to be deducted in future years, or help offset gains as well. I would suggest Amending the 2017 return and attaching a schedule showing the effect on the 2018 & 2019 return, showing the net available carry-forward to the upcoming 2020 tax return. This would avoid having to Amend each of the 2017, 2018 & 2019 years.
I should add... All of my 2017 CLCO are short term losses. I used the max ($3,000) for 2017-2019 but then realize in 2019 that I forgot to report a portion of the 2017 1256 losses. My accountant gave me a copy of the 1040x, Schedule D, and 6781 forms that were submitted to the IRS for 2017 amendments.
Now in 2020 I have substantial short term gains that I would like to use the entire capital loss carry over. I am not sure how to enter this into Turbotax. It seems when I inserted 1256 to include 2020 gains and then another for 2017 amended Turbotax calculated this correctly to write my losses off against my gains, however, I seems you are stating this is incorrectly reported.