HSA distribution income and carryover losses

[TN9]

I'm over 65 and have $5700 in unused capital losses from 2022.

For 2023 if I take a non-qualified HSA distribution of $5000 will I be able to use $3000 of the carryover losses against the $5000 distribution and only have to pay income tax on $2000?

[Opus 17]

Yes, but it's not really that specific.   You can deduct $3000 of losses against any other taxable income, it doesn't have to be an HSA distribution.   

[TN9]

Thank you for the prompt reply.

Piggybacking on the question, if I also have $500 in capital losses from a crypto sale. Would I be able to use another $500 of the carryover losses in addition to the $3000 (total of $3500) that will offset the ordinary income?

[VolvoGirl]

No.  After netting your gains and losses you can only deduct up to 3,000 per year.  The rest you have to carryover.   If you had 500 of GAINS you could use up 3,500 of losses.

[TN9]

Oops! I wrote the question wrong. It's a $500 Capital Gain from Crypto sale not loss.

I believe you realized that. So to clarify, first I can use $500 of carryover loss to offset the crypto gain and then $3000 additional to offset the HSA ordinary income. Am I understanding correctly?

[VolvoGirl]

YES!    You get to first offset the loss against any gains you have each year so that can use more of it up.  Then after applying the loss to the current gains you can take a max loss of 3,000 (1,500 MFS)per year.  Turbo Tax does all the calculations for you.  Just enter the prior year carryover amount.

If you transferred your prior return it should be already filled in.

[TN9]

Thank You