Low income, found large capital loss 1099 - refile?

[AdamAsks]

Hi, I filed taxes for my newlywed daughter and husband. After filing, he gave me a 1099 showing a $7K capital loss due to stock sales. Their income was only $13K, so when I entered the 1099 there was no change in tax owed (really, refunded) and Turbo Tax desktop would not let me refile.

Do I need to refile to carry over the loss? The IRS already has the same 1099, submitted by Ameritrade. 
if yes, how do I do it in TT if it seems to not let me?

if no, then just manually enter the carry forward loss in next years return?

TYVM

[TomD8]

Yes, your daughter and son-in-law should file an amended return on which they include the 1099-B.

From the IRS instructions for Schedule D:

"Be sure to report all of your capital gains and losses even if you can't use all of your losses in 2022."

https://www.irs.gov/instructions/i1040sd#en_US_2022_publink24331id0e299

[rjs · Accepted solution]

You can't "refile" a tax return. You have to file an amended return, Form 1040-X, to make changes to a tax return that has already been filed. Do not file the amended return until the first tax return has been processed and they have received the original refund.

You do have to file an amended return to establish the loss and calculate the correct carryover amount. The IRS does not keep track of capital losses from 1099 forms.

See the following FAQ for instructions to amend a tax return that you filed with TurboTax. (It says "prior year" but it also works for 2022.)

How do I amend my federal tax return for a prior year?

If you are using TurboTax Online, before you start the amended return be sure to download a PDF of the original tax return and save it on your own computer. Once you amend it, you will no longer be able to access the original in TurboTax.

It is currently taking the IRS 20 weeks or more to process an amended return.

If you need further help, please state whether you are using TurboTax Online or the CD/Download TurboTax software.

[fanfare]

when you amend you will submit a new Schedule D and possibly Form 8949.

The schedule D will record your loss carryforward for next time.

[Hal_Al]

Q. Do I need to refile to carry over the loss?

A. No. See explanation below. . 

Q. if yes, how do I do it in TT if it seems to not let me?

A.  As others have said, you do not "re-file", you file an amended return. 

Q. if no, then just manually enter the carry forward loss in next years return?

A. Yes. Filing an amended return, might put you on "firmer footing" with the IRS. I'm of the opinion that it is not necessary, since the "bottom line" does not change.  What is necessary is to accurately calculate the carry forward amount. It is usually the full $7000, but not always.  In your case, it's probably the full $7K*. 

You said, "when I entered the 1099 there was no change in tax owed". It appears that by you revising the return, TurboTax (TT) has already calculated the carry over amount. TT should have prepared a "Capital Loss Carryforward Worksheet" (abbreviated "Cap Ls Carryfwd" on the list of forms) to show you the amount  to carry over to 2023.  

*Technically, if your standard (or itemized) deduction is greater than your AGI, without  the capital loss, then all your capital loss is carried forward.

[fanfare]

Enter the stock transaction(s) to get your carryforward loss per the new Schedule D.

If you don't file it attached to a 2022 1040-X, you are taking a chance and hoping the IRS does not audit your 2023 tax return against your 2022 tax return.

IRS has computers that look for these things.

@AdamAsks 

[rjs]

In most cases there is no need to file an amended return if the amended return does not show any change. But it in this case there will be a change in the amount of income and the AGI, even though the amount of tax doesn't change. Also, if their 2023 tax return has a capital loss carryover from 2022, but their 2022 tax return does not show a capital loss, the IRS will probably disallow the carryover because on the 2022 tax return there is no loss to be carried over. It's very easy for the IRS to check, and they probably check it routinely, without doing an actual audit.

For those reasons, I think you have to file an amended return, and attach the new Schedule D and Form 8949 to the amended return. If you e-file the amended return, TurboTax will include the necessary forms.