If the IRS only allows you to claim $3,000 per year in capital losses what do specialty firms do who have millions of dollars in losses? What allows them to claim more?

[user78692]

If the IRS only allows you to claim $3,000 per year in capital losses what do specialty firms do who have millions of dollars in losses? What allows them to claim more?

[Carl]

Tax laws are complex well beyond any one individual's ability to even comprehend. There's over 100,000 pages of IRS tax laws, rules and guidance documents. Those rules are different for a C-Corp, and different for an S-Corp, and different for a limited liability company (LLC), and different for a trust, and different for an estate, and on, and on, and on. So you as an individual have to follow the laws that pertain to you as an individual. A corporation has to follow those laws that pertain to the corporation.

[ScruffyCurmudgeon]

You are intermixing a number of concepts that are neither mutually-exclusive nor necessarily connected.

As a personal or individual taxpayer, you are able to use any capital loss to offset capital gains, to the point, if the numbers work out, that you wash away all gains with losses current or prior year carry forwards.  If any capital loss still remains, that cannot be matched against capital gains, then up to $3,000 of loss can be offset against ordinary income.

That is the story for an individual.

For a business firm, the rules and accounting are totally different and very dependent on the nature of the business and for the most part not capable of being compared to your experience as an individual taxpayer.

SEE PDF example

[TaxGuyBill]

For example, the sale of a business asset (at a loss) is not subject to limitations.

[ScruffyCurmudgeon]

Good example - and again  @user78692 this is not a matter related to your experience as an individual taxpayer.

[user78692]

Hey, @Scruffy_Curmudgeon and @TaxGuyBill! Thank you for answering my question. I am very likely mixing up the concepts. I am not quite understanding this perfectly. College grad who decided to do stocks for the first year, and it didn't turn out so well.

For example, lets say I have $10,000 in capital gains losses in 2018 and $0 gains. I can only claim $3,000 in losses in 2018 towards by 9 to 5 job correct, and this is because I do not have have any capital gains profit to offset the losses? In 2019, I now have a capital gains of $7,000 and I had $7,000 in Capital gains losses from 2017. Can I then have them cancel each other out?

[fanfare]

gains and losses don't go on to your return until they are realized gains and realized losses in the current tax year. In that case, they are netted out. See your consolidated 1099-B coming to you soon.

[user78692]

@fanfare I will wait for the form, but is the example that I gave above correct? @Scruffy_Curmudgeon @TaxGuyBill

[fanfare]

If you realized $7,000 gain then a $7,000 carryforward loss will offset that.

[VolvoGirl]

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 per year.

If you have investment sale losses, after you subtract the losses from your gains you can only deduct up to 3,000 per year. You can only deduct up to 3,000 (1,500 MFS) loss per year after any gains you have.  So if you have a lot of current gains you can use up the loss.  The rest you will have to carryover until it is used up.

If you transferred your prior return it should be already filled in.  See Tax Tips
<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/tax-tips/Investments-and-Taxes/Capital-Gains-and-Losses/INF120...>

[ScruffyCurmudgeon]

@VolvoGirl pretty much what @TaxGuyBill and I \had already informed him and disabused him of is misunderstanding

[VolvoGirl]

Just saying it in a different way.  Sometimes another way helps.

[ScruffyCurmudgeon]

see attachment example below just to clear up any misunderstandings!

[ScruffyCurmudgeon]

You can continue carry-forward net capital losses until you either wash them out against realized gains, or drip drip them at maximum of $3,000 a year against ordinary income.  No expiration.

[ScruffyCurmudgeon]

@user78692

and an example for the rest who commented. (you all, but maybe for one) know this.

Just to close this discussion because some of the comments have caused confusion.

TurboTax, if used the prior year, will automatically transfer the short-term and long-term capital losses to be carried forward, and the example attached shows the carry-forwards from 2017 brought in to 2018, and if still unused, the carry-forwards to be transferred over to 2019