Captial Losses and Wash Sales

[dlyon]

Is there any time limit for carrying over capital losses from prior years to future gains? Hypothetical example: Can you use capital loses from year 1 against year 5 gains as long as a loses still exist after being counted against capital gains for the years inbetween 1 and 5.

Example: Lossed 100k year 1

Gained 10k year 2 carry 90k year1 to year 3 offset to 0
Gained 10k year 3 carry 80k year 1 to year 4 offset to 0
Gained 10k year 4 carry 70k year 1 to year 5 offset to 0 
Gained 70k year 5 Losses from year 1 offset Gains for 0

In the example above i left the 3k income exemption off intentionally for simplicity sake. 

Can you do the above, or will a loss expire? 

Does the same apply for Wash Sale except minus the income deduction?

[Critter · Accepted solution]

Capital loss carryovers continue until you use them up or DIE whichever comes first.  

And wash sales will continue until you stop re buying the same stock that is causing the wash sale to kick in ... the basis adjustment for the wash is forever or until you sell the security (and not re buy it)  or  DIE (when your beneficiaries get the stepped up basis). 

[dlyon]

Thank you! That's great. I thought so, but I just wanted to make sure I understood it correctly. I don't need IRS charging me interest.

[dlyon]

How does economic substance apply to cryptocurrency trades? I understand wash sale does not apply here since it's not stock or a security. However, I think economic substance might apply because trades took place in a very short period. However, I'm not sure this either.

I entered into the loss sales to protect myself from further losses to the high volatility recently. So under this does this satisfy economic substance? Then made further trades to earn the losses back. We are talking about 40-10% swing in the market value hourly or daily.


EG. Sold for loss then next day or hour sold for a slight gain. Then sold again for loss. Then maybe several more gains within hours of each other.


In this situation would you calculate losses like you would with wash sales? If so, what letter code do you use for the adjustment? L or O? I don't think it would be W. If L, what is this covered under in the tax code?

[Critter]

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[dlyon]

Thank you