Capital gains carryover confusion
February 25, 2021 6:54 AM Subscribe
For USians: I’m wondering if you have historical short-term capital losses that carryover from prior years, but long-term capital gains for the current year, do those gains have to offset the losses when filing taxes? Or can taxes be paid at the long-term capital gains rate despite the carryover losses?
Supporting Dashy: From IRS Pub 550, Investment Income and Expenses: "When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year."
posted by Mr.Know-it-some at 7:08 AM on February 25, 2021
posted by Mr.Know-it-some at 7:08 AM on February 25, 2021
You can't selectively save old carryover losses. In the current year you must first sum any carryover losses with your current year losses and/or gains, just as if the carryover loss occurred in the current year.
If the gain is bigger than the loss, then you only pay the 15% long term tax rate on the net gain. If the loss is bigger than the gain, then you pay no tax on the gain but you must apply up to $3,000 of the remaining loss against your ordinary income. Even if you never have a gain, you must subtract $3,000 of loss each year from your ordinary income until it is all gone.
posted by JackFlash at 8:40 AM on February 25, 2021
If the gain is bigger than the loss, then you only pay the 15% long term tax rate on the net gain. If the loss is bigger than the gain, then you pay no tax on the gain but you must apply up to $3,000 of the remaining loss against your ordinary income. Even if you never have a gain, you must subtract $3,000 of loss each year from your ordinary income until it is all gone.
posted by JackFlash at 8:40 AM on February 25, 2021
Just hopping in to agree with everyone. You need to offset your current year LTCGs with your carry forward STCLs up until your current year LTCGs reach zero. Then, you can apply up to $3,000 of the carry forward STCLs against current year ordinary income.
posted by dngrangl at 10:19 AM on February 25, 2021
posted by dngrangl at 10:19 AM on February 25, 2021
Response by poster: Thanks all.. I knew I was employing wishful thinking. It'll have a salient effect on whether I decide to hold positions to yield the potential tax advantage.
posted by drpynchon at 6:10 AM on February 26, 2021 [1 favorite]
posted by drpynchon at 6:10 AM on February 26, 2021 [1 favorite]
This thread is closed to new comments.
Even within one year, types of gains and losses are used preferentially within-type (eg short against short) and then against other types. So this year, you'll have to use the carryover loss, and it will apply against the LT gains.
posted by Dashy at 7:03 AM on February 25, 2021