Turbotax using more than $3000 carryover losses to offset current year gain

[keepitsimple77]

Folks, 

what am i missing, turbotax is using all the $10K of carryover losses to offset my current year capital gain rather than the allowed IRS limit of $3k.  It does show the $10K as short term capital loss carryover but i dont know if IRS distinguishes between LT and ST carryover. 

how do I proceed with this? thanks 

[Bsch4477]

TurboTax is doing it correctly. First the carryover losses are applied to capital gains and any left over loss is applied to regular income with a $3,000 maximum. 

[rjs]

@keepitsimple77 

You misunderstood the rules. The $3,000 limit is for capital losses used to offset ordinary income. There is no limit on the amount of capital losses that are used to offset capital gains. Capital losses, both from the current year and carryover, are first applied against capital gains. If the losses exceed the gains, up to $3,000 of the remaining loss is applied against other income.

[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 if there is still a loss, you can take a max loss of 3,000 per year.

[garryowen777]

I have a further question regarding long term capital loss carryover.

For tax year 2023, I had long-term capital losses of $7,742 with no long-term capital gains, no short-term capital gains and no short-term capital losses.  That gave me a total of $7,742 in losses for the 2023 tax year.  Turbo Tax applied $3,000 of the long-term capital losses to my regular income to reduce it for tax purposes.  That made sense to me, although the Capital Loss Carryover Worksheet that Turbo Tax calculated has me confused.  It did two calculations--Regular Tax and Alternative Minimum Tax.  For Alternative Minimum Tax, it calculated a potential carryover to 2024 of $4,742 which is logical to me because it represents what was left of my original loss after $3,000 was used to lower my regular income in 2023.  However, for Regular Tax, it calculated the full $7,742 as being available for carryover to 2024.  That is not logical to me as I see $3,000 of my loss having been used in 2023, but let's press on to 2024.

For tax year 2024, I have $25,477 in long-term capital gains.  As I expected, Turbo Tax has determined I do not owe Alternative Minimum Tax.  When it figures my Regular Tax, Turbo Tax uses the carryover it figured of $7,742--but that amount is not logical to me and thus feels wrong.  I had a long-term capital loss of $7,742 in 2023.  My regular income in 2023 was reduced by $3,000 which allowed me to save on my taxes.  It looks to me like I am being allowed to take that $3,000 loss again in 2024 (this time applied to long-term capital gains instead of regular income) along with the $4,742 that was not used in 2023.  I get the use of $4,742 in 2023 long-term capital losses against the 2024 long-term capital gains--that part of the carryover makes sense to me.  What I don't understand is how it appears that I am being allowed to use the $3,000 that I used against regular income in 2023 again in 2024, this time against Long-term capital gains.  Where am I going wrong?

[rjs]

@garryowen777 

On your 2023 Form 1040, what are the exact amounts on lines 11, 12, 13, 14, and 15?

If line 15 is zero and line 14 is more than line 11 you did not really use $3,000 of the loss, even though you see the -$3,000 on Form 1040 line 7. You did not get the full benefit from the loss because your taxable income (line 15) would have been negative, but you cannot have negative taxable income.

You mentioned the Capital Loss Carryover Worksheet. In the 2023 tax return, I think you are looking at the Capital Loss Carryforward Worksheet, not the Capital Loss Carryover Worksheet. The Carryforward worksheet for 2023 calculates the losses to be carried over from 2023 to 2024. On line 1 of the Carryforward worksheet, in the Regular Tax column, you should see a negative number. That's the amount that Form 1040 line 15 would have been if it had been allowed to be less than zero. Line 13 of the Carryforward worksheet, in the Regular Tax column, would be $7,742. That's your long-term capital loss carryover from 2023 to 2024 because you were not actually able to use any of the loss in 2023. The calculation in TurboTax is correct.

[garryowen777]

First, thank you for the response!!

To answer your first questions, those values on my 2023 1040 were (11) 26,251; (12) 30,700; (13) 0; (14) 30,700 and (15) 0, except 15 would have displayed -4,449 if the instructions didn't say to enter 0 when the calculation produces a negative number but, as you said, that is not allowable for taxable income.  

After submitting my question, I sort of talked myself into the rationale that you state--even though the 3,000 capital loss is on line 7, I didn't get a benefit from it--all it did was cause the real calculation for line 15 to go even further into the negative which was pointless.  But, while 2023 was my 48th year of filing income tax returns, it was the first time I ever encountered that scenario.  In fact, I have only had capital losses or gains in maybe three years total--an unexplored territory for me.

As for the worksheet name, that had me scratching my head.  The sheet that Turbo Tax produced when figuring my 2023 taxes and showing the carryover from 2023 to 2024 is indeed called the Capital Loss Carryforward Worksheet.  But, the sheet that Turbo Tax produced when figuring my 2024 taxes and showing the carryover from 2023 to 2024 is called the Capital Loss Carryover Worksheet.  For a while I was wondering if they served two distinct purposes but their content is the same.  Maybe it has to do with the context of how the data was going to be used--in 2023 it was being calculated for the purpose of carrying forward to 2024 but now, in 2024, it is getting used up in its entirety and there is no more carrying forward.

I knew Turbo Tax was right, I just could not get comfortable enough with how I was explaining it to myself...lol.  Thank you again for a prompt and thorough response!

[Lonestar]

I have the same thing going on as the OP... TT is allowing a bit over $10K for capital losses. When I click to have it explain, it still says "$3,000 of these losses are deductible this year. The rest will be carried forward to next year's taxes." It doesn't clearly explain, to me anyway, where the other $7K+ is coming from. I want to understand your explanation, but... 

Also, what is strange, on none of my 1099-Bs do I see any short term capital losses. I don't know where the $16K+ of short term losses is coming from. Is there a calculation sheet somewhere that will show that?

[VolvoGirl]

Yes you can use more of it up.  After you apply the carryover from 2023 against all the current gains if you still have a loss you can deduct a max of 3,000 on your tax return.  The rest you carryover to next  year.  But if you have a negative AGI or negative taxable income it will show up on 1040 BUT it won't reduce the carryover to the next year.

Schedule D doesn't actually show the carryover amount. To find your Capital Loss Carryover amount you need to look at your return schedule D page 2. Line 16 will be your total loss and line 21 should be a max loss of 3,000. The difference between line 16 and 21 is the carryover loss.

If you used the desktop version or have the complete pdf of your last year's return you might have the Capital Loss CO (carryover) worksheet that will tell you the amount.

In the Online version you have to save your return with all the worksheet as a pdf file to your computer to see the Capital Loss carry over worksheet. There might be 2. There is a Capital Loss Carryover Worksheet showing the carryover from the prior year and the current amounts. Then there is also the Capital Loss Carry Forward worksheet showing the amount transferring over to next year.

[KrisD15]

Also, from looking at your other post, are you sure you did not start this account last season and the program is pulling numbers entered last year? 

Please go to 

Investment Income

Capital Loss Carryover 

Make sure there is nothing showing as carried-over from 2023 if you did not use TurboTax software for your 2023 tax year return.

@Lonestar 

[Lonestar]

I wondered about that too! I think you may be right. I barely started, then decided I needed an accountant. So... how and where do I go to fill in inaccurate information that it may be using to calculate for 2024? Alternatively, is there a way to tell TT not to use what it finds for last year? I certainly am not going to recreated the entire 2023 return. Thanks.

[mesquitebean]

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@Lonestar wrote:

I wondered about that too! I think you may be right. I barely started, then decided I needed an accountant. So... how and where do I go to fill in inaccurate information that it may be using to calculate for 2024? Alternatively, is there a way to tell TT not to use what it finds for last year? I certainly am not going to recreated the entire 2023 return. Thanks.

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If you wish to do so, there is a way to start a completely blank online return with no info transferred in from 2023, if that's the route you want to go.  You'll have to enter everything.    To do it requires "tricking" TurboTax with this method:

• Log in and open your return interview.
• Go to the left column tab TAX TOOLS then TOOLS
• Now here's the trick:   In the Tools window choose "Transfer last year's TurboTax return from your computer" (you won't really end up doing that.)
• A popup window will tell you it will clear everything and ask if you're sure.  It's not reversible.  So if you agree, click Continue.
• Next screen says "Transfer last year's TurboTax return".   You don't actually do it.  Ignore the Browse bar, etc., and instead, scroll way down to the bottom to see a blue button  CONTINUE WITHOUT TRANSFERRING.
• Then it should start a new interview with everything blank.

[Lonestar]

@mesquitebean Thanks, I'll keep that in mind for the future. In the meantime, I have found that I can EDIT the 2023 Loss Carryover figure(s), so I'm good! I didn't see any other figures from 2023 in the income section so maybe that never happened after all. <shrug> Maybe I had already entered those values and because of tired brain, I'm struggling to keep up with myself. LOL

[mesquitebean]

@Lonestar  

If you decide to use those steps I left you above to clear your return without transferring from 2023, you may have to do it more than once.   I was just playing with it while I was writing your steps.  And out of 3 times that I tried,  it did clear everything on 2 attempts, but on one attempt, it left some of the data.  So I just repeated it another time, then everything was gone.    I don't know why it wasn't consistent.  You should know its successful if your name, DOB, filing status, all that is gone and completely blank.   If there are any remnants,  you can go through the steps again.

[mesquitebean]

@ Lonestar    Looks like we were posting here 1 second apart!  😃    Yes, editing may be easier if there's only a small amount of 2023 transferred data that needs correcting.  Clearing without transferring is mostly for someone who had a largely messed up tax data file from 2023 and needs to get rid of a bunch of bad 2023 data that transferred in.