Do I have to use a capital loss carryforward even if I have no taxable income?

[hebroots]

Not real happy about your answer but I thank you for it, anyway. Have a good day.

[5Swallow5]

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).

[Hal_Al]

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.  

[supamest]

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?

[Anonymous_]

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@supamest wrote:

Do you have to use the loss carryover against those gains that are not subject to any taxes to begin with?

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Yes, the loss would still be used to offset any gain.

[Slimbo]

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?

[Hal_Al]

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

[Slimbo]

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.

[Kr_W]

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.

[Mike9241]

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

https://www.irs.gov/pub/irs-pdf/i1040sd.pdf   

[hebroots]

This subject is a never ending burden I am saddled with for life. It does not effect my taxes or my refund, it has no monetary impact, it is the only reason I have to file a return at all. Just more nonsense paperwork for all concerned. If I stop following this issue then the final return at my death will have to catch up with all the years I did not file.

[Anonymous_]

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@hebroots wrote:

If I stop following this issue then the final return at my death will have to catch up with all the years I did not file.

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Not exactly. Any unused capital losses (i.e., losses that were carried forward) are essentially lost/foregone upon your death. 

Those who acquire any property (including stocks, bonds, et al) as a result of your death, use the fair market value on the date of your death as their basis for that property. 

Whoever files your final income tax return (1040) can only use up to $1,500 ($3,000 if MFJ) of net capital losses to offset other income.

[hebroots]

Yes, but you still have to document the final number from previous years to do a “final” return. So in the year of my death the prior year return will show the last value of the loss.  I was told on this site that without filing in all years someone would have to dig out all the numbers anyway. I no longer have income to file but this loss never goes away until you die but you still have to document it all, nothing disappears by magic. Believe me, wish it weren’t so.

[Kr_W]

MIKE 9241 I hear what you are saying.

Thanks for all your responses by the way.

I understand that line 7 of 1040 could be either 3000$, or a smaller amount, if line 16 on Schedule D is smaller than $3000, in my case - $2500 loss. And I do get that you do not loose anything, when you add that -$3000 or -$2500 later back on your worksheet on line 2 to your “negative income” on line 1 of your carry over worksheet.

But it seems to me, what really determines your carry over loss for that year in which you have only capital gains in income is not the first two lines of your carry over loss worksheet, but  line 9 of the carry over worksheet. It is asking you to enter line 15 of  Schedule D which then that  becomes your carry over loss for the year.  That number on line 15 of Schedule D  is nothing more than you subtracting ALL capital gains, lets say that was $5500 on line 13 of Schedule D from the entire carry over loss on line 14 for example  $8000  of Schedule D, leaving you with $2500 to carry over for that year.

So looking at  line 9 and 13 of the “carry over loss worksheet” , it is clear , one must subtract ALL capital gain, the full amount from the carry over loss.  If you had 8 K in carry over loss, and 8K capital gain on Schedule D, and the 8k capital gain was your “ only taxable” income that year , then you would use up the entire amount of your carry over loss up with the way the worksheet is structured . That 8K gain is  “taxable income”,  you would not even owe taxes on.  So how can one carry forward all “carry over loss” with low income? How is that calculation done, it is  a mystery to me

Yes you can add back on the worksheet  the $3000 or $2500 to your negative income but the" carry over loss "is determined by line 9 on the worksheet

[Hal_Al]

@Kr_W  said  "It seems to me, what really determines your carry over loss for that year in which you have only capital gains in income is not the first two lines of your carry over loss worksheet, but  line 9 of the carry over worksheet?"

No.   There are two separate calculations going on.  The first is that your current year capital gains (and losses) MUST be combined with your capital loss carry over from the previous year. You must do this  regradless of  how low your other income or your  total imcome is. This is true even if your income is so low that none of it is taxable. This calculation is done on Schedule D, not the carry forward work sheet. If you still have net capital loss, on Schedule D, that loss (up to $3000) will go on line 7 of form 1040. If your net loss is more than $3000, or the loss on line 7 is not fully used to reduce your taxable income, the carry over worksheet will be generated.

Using your example: $5500 on line 13 of Schedule D, $8000  on line 14, leaving you with $2500 net loss.  That $2500 is not neccessarily you carry over.  First the $2500 must go to form 1040 to determine your taxable income.  If not needed, then the $2500 is your carry over.

Q.  So how can one carry forward ALL “carry over loss” with low income?

A. You can't, if any of that "low income" is capital gains (including capital gains distributions from mutual funds).