use limits of long-term capital gains losses carried forward

[rbrookefox]

I understand that long-term capital losses can be used first to offset long-term capital gains and then up to $3,000 of ordinary income and that this $3,000 offset of ordinary income can be repeated going forward, but can unused long-term capital gains be used to offset long-term capital losses in excess of those $3,000 ordinary income offsets in the future? For example, if I have $200,000 of long-term capital losses, $100,000 of long-term capital gains and $10,000 of ordinary dividends this year, I might offset $100,000 of long-term gains and $3,000 of ordinary income attributable to the dividends this year; next year might offset $3,000 of ordinary income with $3,000 of the long-term losses carried forward, leaving me with $94,000 of used losses. Can I use these to offset long-term capital gains next year and if so to what extent?

[Hal_Al · Accepted solution]

Q. Can I use the unused losses to offset long-term capital gains the following  year and if so to what extent?

A. Yes, that's how it works.  Up to the full amount of the $97,000 carry over.

But, there's a modification to your example.  The first  $3,000 of  the carry  off would would not first be applied to ordinary income.  It would first be applied to long term gains, then short term gains, up to the full amount of the carry over.  Anything left over (up to $3000) would then be applied to ordinary income. 

Q. I understand that long-term capital losses can be used first to offset long-term capital gains and then up to $3,000 of ordinary income?

A.  Not exactly.  LT losses MUST be applied to LT gains and  then ST gains, before (up to) $3K will be applied to ordinary income.

[rjs]

You have no choice about how capital gains and losses are treated on your tax return, or how and when capital losses are used to offset capital gains or other income. There is only one set of rules in the tax laws. You enter your gains and losses in TurboTax, or any other tax software, and the software does the calculations according to the tax laws. There are no choices or options.

I don't understand what you mean by "unused long-term capital gains." Gains are not "used." All gains have to be reported in the year they occur. Any gains that are not offset by losses get taxed that year. There is no carryover of capital gains.

[NCperson]

@rbrookefox - what you are proposing isn't how it works. You don't have an option.  The capital losses must be netted against the capital gains.  You can't hold back the capital losses to be used in a future year at your whim.   

[rbrookefox]

@Hal_Al Thanks much. I knew but failed to articulate that ST gains stand in front of ordinary income. I never found it mentioned that long-term losses could be carried forward and would be applied as such.

[rbrookefox]

@rjs I have a choice as to how I prepare for the law and my taxes in my year end tax loss harvesting. There is potential carry forward of capital gains losses.

[rbrookefox]

@NCperson Not at my whim, no, but if I do or do not meet the criteria of the law. I can either book the losses or not this year or later. This affects after-tax bottom line depending on tax law, which is of what I'm trying to understand.

[fanfare]

Realized capital gains in 2022 cannot be offset by tax loss harvested in 2023.

You only have two trading days left.

@rbrookefox 

[rbrookefox]

@fanfare Not sure why you thought I wanted to do that. Tax losses from this year can be carried forward to offset gains for 2023. And, yes, there are two days left to book losses for this year, which is a central point of this whole conversation.