Capital loss carryover issue with desktop TT

[Fr8tech]

So I’m trying to file my 2023 return. My and my wife’s sole income came from short-term capital gains but falls short of the standard deduction limit for married-filing-jointly.  We also have a $25,000 capital-loss carryover from prior years. It’s my understanding that the carry forward is only applied to taxable income after all other deductions are applied (so in our case my understanding is that our taxable income would be zero after standard deduction). Meaning we should be able to carryover the entire $25,000 from our previous years into next years return? Is that correct or no?

Secondly, in situations when the carryover loss is appropriately applied, it was my understanding that there is a $3000/year limit to which it can be applied. (For example: In a prior year, I had $77k in capital gains and only $3k of my $28k carryover at the time, was deducted by prior CPA who specialized in capital gains tax law). This year,when I originally entered my info into the program, it seemed to show that it was trying to use $9-$10k of my existing carryover to offset the gains. Im so confused on where/how the $3k IRS limit comes into play within the program.

*Update so far- I am attempting to enter my capital gains into form 4797 as business property sold- which is how it has been done in prior years since I have previously elected section 475 MTM accounting. This seems to have resolved the larger than desired carryover into 2024, but appears it is still using $3k of carryover to offset income that I believe shouldn't qualify as taxable income since the standard deduction would reduce our tax liability to zero

[Anonymous_]

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@Fr8tech wrote:

...My program however is appearing to try and use almost $11k of my carryover in year 2023....

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The $3,000 comes into play after the loss carryover offsets current tax year capital gains. 

Did you have capital gains for the 2023 tax year?

[VolvoGirl]

I'm confused.  I could not follow that.  So in 2022 you had $77K in GAINS?  But you had a -3,000 loss on 1040 line 7?  How much total loss did you have?  Did you have a carryover from 2021?  If  25,000 carried over to 2023 you must have had total loss for 2022 as 77K+3K+25K = $105,000?  Look at your 2022 Schedule  D.  

Yes any  loss you have for 2023 or that carried over from 2022 will apply to your short term gains.

Schedule D doesn't actually show the carryover amount. To find your Capital Loss Carryover amount you need to look at your return schedule D page 2. Line 16 will be your total loss and line 21 should be a max loss of 3,000. The difference between line 16 and 21 is the carryover loss for next year.

There is also a Carryover Worksheet showing the carryover from the prior year and the current amounts. Then there is also the Capital Loss Carry Forward worksheet showing the amount transferring over to next year.

In the Online version you have to save your return with all the worksheet as a pdf file to your computer to see the Capital Loss Carry Over and Carry Forward worksheets.

In the Desktop program you can go to Forms and find it in the list in the left column.

But if you have a negative AGI or negative taxable income it will show up on 1040 BUT it won't reduce the carryover to the next year.

[Fr8tech]

Thanks for the response. To answer your question simply, yes, my brokerage statement showed $11k in capital gains for the year

[Fr8tech]

@VolvoGirl  Thank you for the reply. I have edited the original post to try and make my questions a little easier to understand. 

 So in 2022 you had $77K in GAINS?  But you had a -3,000 loss on 1040 line 7?  How much total loss did you have?  Did you have a carryover from 2021?  If  25,000 carried over to 2023 you must have had total loss for 2022 as 77K+3K+25K = $105,000?  Look at your 2022 Schedule  D.  

Yes in 2022 I had 77k in gains.

Yes there was -3k on 1040 line 7.

Unsure where I would calculate total loss...?

Yes I had $28k in carryover from 2021

You totally lost me with the next sentence of calculations

There is also a Carryover Worksheet showing the carryover from the prior year and the current amounts. Then there is also the Capital Loss Carry Forward worksheet showing the amount transferring over to next year.

Thank you, I see them and am making some progress. They appear to be trying to carryover $22k in losses to 2024, so they're using up $3k this year.  Just doesn't seem like they should be using any this year given that our income is below standard deduction.  Perhaps I am mistaken on what constitutes taxable income? I just dont want to be using up our $3k of our carryover if we shouldnt be....

[Bsch4477]

This might help. 

https://fairmark.com/investment-taxation/capital-gain/capital-losses/capital-loss-with-little-or-no-...

[Mike9241]

@Fr8tech Nope. first any capital loss c/o is applied to current year capital gains. if there is still a net capital loss up to $3,000 may be used to reduce other taxable income. Any remaining capital loss is carried over to 2024. in Turbotax there is a carryforward computation worksheet showing what's left for next year. 

[Fr8tech]

@Bsch4477 I believe this answers my question. Thank you- I don't know who you people are that are spending your saturdays giving free advice on this forum, but you are heroes in every way!