capital loss carryover
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taxer789
Returning Member

capital loss carryover

My child has a capital loss carryover. Child has dividends and interest (no earned income and no capital gains). Tax owed is zero.Turbo tax is reducing child's capital loss carryover by the amount of taxable income child has. Why do I need to reduce the carryover if it provided no tax benefit as no taxes were owed. Would the answer be different if had capital gains not interest and dividends?

3 Replies
MinhT1
Expert Alumni

capital loss carryover

If your child has a capital loss carryover, $3,000 of that loss carryover is used every tax year whether or not there is income to offset.

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taxer789
Returning Member

capital loss carryover

turbo tax does not reduce the carryover by 3000 every year regardless of income situation. Perhaps I have misunderstood reply?

DianeW777
Expert Alumni

capital loss carryover

Your capital loss carryover is reduced by the amount of capital loss that was actually used to reduce your taxable income, not by the amount of capital loss deduction shown on your tax return. Here is an example when the capital loss may not be used and carried to the next year.  You can compare this example with your child's return.

 

Here’s how the rule would apply in this example. $500 in income and the capital loss carryover

 

The first page of Form 1040 would show $500 of income and a $3,000 capital loss deduction, giving you taxable income of -$2,500. Then we subtract your standard deduction*. For a single taxpayer in 2020 this would be $1,100 (assuming the $500 is interest income). The result is -$3.600. Now we add back the $3,000 capital loss to see that even without the capital loss you have no positive taxable income. That means your entire capital loss would carryover to the next year, even though you show a $3,000 capital loss deduction on your return.

 

*Dependents – If you can be claimed as a dependent by another taxpayer, your standard deduction for 2020 is limited to the greater of: (1) $1,100, or (2) your earned income plus $350 (but the total can't be more than the basic standard deduction for your filing status).

 

Schedule D Instructions actually have the worksheet for the carryover if you would like to review.

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