Capital Gain/Loss Offset

[Shopper08]

I have LT capital gain for 2021, and wanted to know when do my LT capital loss have to be realized by in order to be able to use it to offset against my 2021 LT gain?

[Anonymous_ · Accepted solution]

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@Shopper08 wrote:

I have LT capital gain for 2021, and wanted to know when do my LT capital loss have to be realized by in order to be able to use it to offset against my 2021 LT gain?

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The losses have to be realized during the 2021 tax year.

Also, you can carryover losses from prior tax years to the 2021 tax year. 

[RobertB4444]

Your loss and gain have to occur in the same year in order to offset each other.  However, if you have a loss with no gain the portion greater than $3,000 is carried forward into the next year in order to offset future capital gains.

[Shopper08]

Specifically, I bought 50 units of Stock ABC on 3/1/2021 and bought another 30 units on 11/1/2021, all are currently at an unrealized loss. So I will not be able to use these losses against my LT gains when I file my 2021 taxes, even if I realized losses for these 50 initial units on 3/2/2022 (which is prior to my 2021 filing)? In other word, losses will have to be used either on the tax year they were realized or carry forward years? 

Is there a duration for how long the losses can be carryover for? And do the losses accumulate, each year in the years where I have losses exceeding the allowable offset amount per year?

[Shopper08]

Does that mean if I have $5000 loss with no gain, would $3000 be used to offset ordinary income, and remainder $2000 would be carryforward?

[Anonymous_]

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@Shopper08 wrote:

....losses will have to be used either on the tax year they were realized or carry forward years? 

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Yes, the losses will be realized (to offset gains) in the year they were incurred, in this case 2022.

Losses can be carried forward indefinitely (at least until you die). Losses offset gains and then up to $3,000 can be used against all other income, with the balance (if any) being carried forward.

[Shopper08]

@Anonymous_ 

Q: What happens in 2022 tax year if, 

Scenario 1: I do not have any gains and have losses of $5000. 

Scenario 2: If I do not have any gains and have losses of less than $3000. 

Scenario 3: If I have gains of $3000 and loss of $2000. 

Scenario 4: If I have gains of $1000 and loss of $3000?

Scenario 5: If I have gains of $1000 and loss of $4000.

Thanks.

[Anonymous_ · Accepted solution]

If you have only losses, then up to $3,000 of those losses can be used to offset other types of income. The losses in excess of $3,000 will be carried forward.

If you have gains and losses, the losses are first used to offset other gains.

[JohnB5677]

Scenario 1: I do not have any gains and have losses of $5000. 

You will get a $3,000 deduction on the 2022 return and $2,000 will carryforward to 2023

Scenario 2: If I do not have any gains and have losses of less than $3000. 

You will show a $3,000 deduction and no carryforward.
 

Scenario 3: If I have gains of $3000 and loss of $2000. 

You will show a gain of $1,000.

Scenario 4: If I have gains of $1000 and loss of $3000? 

You will show a loss of $2,000 and no carryforward

Scenario 5: Or gains of $1000 and loss of $4000.

You will show a loss of $3,000 and no carryforward.

[Shopper08]

@JohnB5677

Scenario 4 and 5: “will show a loss of $xxx…” is showing a loss the same as the loss being a deduction towards other income?

Below is to clarify my understanding for Scenario 5:

What if I have gains of $5000, loss of $8000?

What if I have gains of $5000 loss of $9000?

[Anonymous_]

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@Shopper08 wrote:

What if I have gains of $5000, loss of $8000?

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Then you have a net loss of $3,000 (that can be used against other income).

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@Shopper08 wrote:

What if I have gains of $5000 loss of $9000?

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Then you have a net loss of $4,000. $3,000 can be used against other income and the remaining $1,000 loss is carried forward.

[Anonymous_]

See also https://www.irs.gov/taxtopics/tc409

[crajarshi]

 very informative and great learning. I've a scenario where my salary is a combination of cash component and RSU and unfortunately my company does not let my brokerage deduct my RSU portion of the tax correctly. As a result I owe IRS till 07/31 70K as part of total compensation YTD.

I also recently traded some 2020/2021 RSU and lost 68K in total trade.

I'm trying to pay IRS this quarter, so should I pay 70k -68k =2K or entire 70K?

[Mike9241]

Restricted stock units (RSUs) are company shares granted to employees. RSUs that appear on Form W-2 indicate that shares have been delivered to you, which usually happens after vesting.  income on w-2's is ordinary income 

the loss you say you incurred in the sale of RSU's is a capital loss. at most only $3,000 of net capital losses for the year can be deducted against ordinary income 

this is from an article in Forbes

According to the IRS rules for supplemental wage income, such as income from the vesting of restricted stock or RSUs, your company must withhold tax at a flat rate of 22%. (The rate jumps to 37% for income amounts in excess of $1 million during the calendar year.)

so some shares should have been sold to cover the required withholding. if not, this can result in a substantial penalty that the IRS can levy against the company. 

so in figuring the tax you owe it would likely be your marginal tax bracket rate times the value of the stock to be added to your w-2 less whatever was withheld. we don't know your marginal tax bracket. It is not the effective tax rate that Turbotax shows on the filing instructions. The marginal tax bracket is shown in the tax history report. I don't know if all versions of Turbotax produce this report. 

don't forget about state taxes if you are subject to them. 

you should discuss with your company the ability to sell additional shares upon vesting so your full tax liability is covered. 

[fanfare]

"my company does not let my brokerage deduct my RSU portion of the tax correctly."

there are hundreds of posts on forum about RSU.

Understand how to report properly before filing.

1099-B must be adjusted when filing Schedule D.

otherwise you will overpay.

This has nothing to do with losses on other positions.

@crajarshi