The simple answer is no. But, you must report the capital loss carry forward on your current year return. You are not allowed to postpone using it or saving it for a more advantageous time.
The actual is answer is more complex. Although you have to report it, it may not all get wasted (used). The best thing to do is prepare a tax return (even if you aren't required to file) to accurately calculate the carry over to the next year.
The tax law says you have to use a capital loss before you're allowed to use a personal exemption If the personal exemption would completely eliminate your income, you would rather use the personal exemption first. That way, the capital loss would carry over to the next year. Instead, you're forced to use the capital loss, and there's no carryover for unused personal exemptions. Don't ask me why the law works this way: that's just the way it is.
An example may help explain it:
You have a $12K capital loss carry forward from the previous year. Your AGI is $4000, including the $3000 loss on line 13. Meaning your income was $7000 before deducting the loss,
$7000
- 6100 Standard deduction
= 900 Taxable income before exemptions and capital losses are deducted
$3000 Capital loss shown on line 13
- 900 Used to reduce pre-exemption taxable income to 0
= 2100 of that $3K capital loss will be carried to 2014. That's in addition to the $9K (12,000-3,000), so $11,100 will be carried forward. TurboTax can handle this calculation and will prepare a carry forward worksheet to show it.
Like I said, it's complicated. It's the government.
Edit: Starting with tax year 2018, there are no more personal exemptions. Personal exemptions were replaced. by larger standard deductions
The answer is still the same. Only the personal exemptions have been eliminated. With the larger standard deductions, it's even more likely that low income people will be able to carry forward the entire capital loss.
Modifying the example above, for the current law:
You have a $12K capital loss carry forward from the previous year. Your AGI is $4000, including the $3000 loss on line 7 (2020 form 1040) . Meaning your income was $7000 before deducting the loss,
$7000
- $12,400 Standard deduction
= 0 Taxable income before capital losses are deducted
The entire $12,000 capital loss can be carried forward.
The simple answer is no. But, you must report the capital loss carry forward on your current year return. You are not allowed to postpone using it or saving it for a more advantageous time.
The actual is answer is more complex. Although you have to report it, it may not all get wasted (used). The best thing to do is prepare a tax return (even if you aren't required to file) to accurately calculate the carry over to the next year.
The tax law says you have to use a capital loss before you're allowed to use a personal exemption If the personal exemption would completely eliminate your income, you would rather use the personal exemption first. That way, the capital loss would carry over to the next year. Instead, you're forced to use the capital loss, and there's no carryover for unused personal exemptions. Don't ask me why the law works this way: that's just the way it is.
An example may help explain it:
You have a $12K capital loss carry forward from the previous year. Your AGI is $4000, including the $3000 loss on line 13. Meaning your income was $7000 before deducting the loss,
$7000
- 6100 Standard deduction
= 900 Taxable income before exemptions and capital losses are deducted
$3000 Capital loss shown on line 13
- 900 Used to reduce pre-exemption taxable income to 0
= 2100 of that $3K capital loss will be carried to 2014. That's in addition to the $9K (12,000-3,000), so $11,100 will be carried forward. TurboTax can handle this calculation and will prepare a carry forward worksheet to show it.
Like I said, it's complicated. It's the government.
Edit: Starting with tax year 2018, there are no more personal exemptions. Personal exemptions were replaced. by larger standard deductions
Complicated? No. The government wants you to use up your loss carry forward against nothing instead of allowing you to carry it forward to use against a future gain. Not fair. Not right.
I totally agree. This is unfair and wrong. If my taxable income in 2014 is 0 and I had $3500 of capital loss, how can I use Turbo Tax to save the entire capital loss ($3,500) for the next year?
"If my taxable income in 2014 is 0"
How did your taxable income get to zero? Was it because you used the capital loss? You cannot force TT to " save the entire capital loss". It will correctly calculate how much of it you are allowed to "save" .
My income was $645 in 2014 (from dividends). Personal exemption and standard deduction (all together $10,150) would help eliminate my taxable income to 0 (actually negative). In this case, am I eligible for carry forward of the entire capital loss ($3,500) to the next year? Thank you!
Yes, but it's because your income is reduce to zero by you standard deduction ($6100), not combination of your personal exemption and standard deduction (all together $10,150)
You don't need to go thru the exercise of preparing a tax return. The entire $3500 is carried forward. But, you should prepare some documentation, such as the calculations above
This was a very useful answer. But now that personal exemptions have been removed from the tax code, does the answer still apply? In other words, if there is no personal exemption to use, do I still have to use the carryover loss?
No, the answer does not apply for tax years 2018 and after.
The answer is still the same. Only the personal exemptions have been eliminated. With the larger standard deductions, it's even more likely that low income people will be able to carry forward the entire capital loss.
Modifying the example above, for the current law:
You have a $12K capital loss carry forward from the previous year. Your AGI is $4000, including the $3000 loss on line 7 (2020 form 1040) . Meaning your income was $7000 before deducting the loss,
$7000
- $12,400 Standard deduction
= 0 Taxable income before capital losses are deducted
The entire $12,000 capital loss can be carried forward.
Fair enough...I was only addressing the exemption part of the equation.
This whole situation has got me very confused. I had a large capital loss in 2015. For a few years I was able to write-off $3000/yr loss. Also my total amount of carryover would decrease that same amount. Then for some reason the tax forms changed to where I would still get the $3000 writeoff, but the amount to be carried over would not decrease. This has been the only reason for me to file to keep track of my carryover, I do not get a refund nor pay anything. So does this carryover ever go away? I do not need the deduction, the whole thing is crazy.
Just wondering if that situation of having an unfinished carryover will alert the IRS if I did not file? It does nothing but make more paperwork.
@hebroots "Then for some reason the tax forms changed to where I would still get the $3000 write off, but the amount to be carried over would not decrease. "
It may appear that way. -$3000 is showing on line 7 of form 1040. But because your income is so low (and no tax is calculated), the -3000 is not needed to get you to 0 tax. So, that $3000 also carries forward. This is explained above.
I can understand where some would want to hold on to the ability to take a $3000 writeoff but I see no scenario where that would be necessary. I am done with investments. So I am thinking that this year if I prepare a return with the numbers, and not even mention the carryover, but not file it (at that point it would be a "frivolous return"), it would show I neither pay tax or get a refund and have no carryover. This could go on indefinitely otherwise.
Yes, yours is a common situation. The carryover is essentially loss (goes unused) for lack of other income. But the balance does continue to carry over. The ultimate is: the entire carryover is wiped when you die. Even on your final return, for the year of your death, your net capital loss deduction is limited to $3000. Anything in excess is simply loss.
Not real happy about your answer but I thank you for it, anyway. Have a good day.
Hello,
Can you please confirm that a capital gains carryover will continue without me filing a tax return (if I have no income to report)?
And, in 5 year's time, if I do again have an income, then I would file a return, and add schedule D to include the capital loss carryover that remained to be used (and was not lost during the time I did not file a tax return).
Q. Can you please confirm that a capital gains carryover will continue without me filing a tax return (if I have no income to report)?
A. Simple answer: Yes.
But that assumes that you had no income to report, not just insufficient income. Using an example in 2022, you sell some stock for a $1000 gain. That is not enough income for you to have to file a tax return. But that $1000 gain would reduce your capital loss carryover by $1000, even though you didn't actually file a tax return.
What about a situation where you have long term capital gains taxed at 0%. Do you have to use the loss carryover against those gains that are not subject to any taxes to begin with?
@supamest wrote:
Do you have to use the loss carryover against those gains that are not subject to any taxes to begin with?
Yes, the loss would still be used to offset any gain.
How, if at all, do the various answers to this question (below) change in the case of a special needs trust which has a large exemption which reduces taxable income (without applying any capital loss carryforward from the previous year) to zero?
Q. How, if at all, do the various answers to this question change in the case of a special needs trust which has a large exemption which reduces taxable income (without applying any capital loss carryforward from the previous year) to zero?
A. Essentially, for a trust, the pre 2018 calculations still apply. That is, you are allowed to use the exemption ($4300 in 2021 for a special needs trust) to reduce your taxable income before applying the capital loss. So, more of the capital loss may carry forward. A different Capital Loss carryover loss worksheet (incorporating the exemption) is used for trusts. See page 11 at https://www.irs.gov/pub/irs-pdf/i1041sd.pdf
Thanks very much; helps clarify. And I did actually use the carryover calculation worksheet you referred me to when I did the trust's return a couple months ago.
I have worked my way through this thread.
I still do not understand something in regards to having to use “carry over loss” from previous years when your taxable income is below the Standard Deduction.
On one hand this thread states, and the IRS also states, one does not need to use any of the “carry over loss” if the taxable income is Zero. Since “taxable income” does include capital gains, it would follow, that when you subtract that capital gain income ( line 7 of 1040) from the standard deduction you end up with Zero taxable income on line 15 of 1040 . Therefore, no carry over loss is used.
But it is also stated , that the “carry over loss” has to be netted against capital gains. Is this always the case, even if your capital gains are the only income you have, and the amount is less than the standard deduction?
Is the IRS saying (without stating it), yes, a person can carry forward all “carry over loss” when then have Zero taxable income EXCEPT when they have capital gains ? That would translate into the fact that my only income of $5000 capital gain MUST deducted from their carry over loss that year.
Example: If one enters the capital gain 5000 $ into line 7 of the 1040 as the only income all my carry over seems preserved as my taxable income is Zero after the Standard Deduction. However, if I must fill out Schedule D and enter my capital gains on line 13, that Schedule D forces me to NET the entire capital gain $5000 (my only income) against the entire carry over loss from previous years ($ 9000) ,not even just 3000$. It appears doing the latter cannot be undone on the worksheet.
Turbotax will calculate the correct carryover. if you do not have income, the return will still show up to a $3,000 loss ($1,500 if married separate) the loss on line 7 of the 1040. this is how the IRS wants it. In fact, none will be used, so the following year you'll have the full amount
if you save a pdf of the return - all forms there should be a capital loss carryover worksheet.
if not you can calculate it yourself page d-11