$3000 capital loss carryover

[paul10003]

Hi Folks,

just registered; first post. i have a question about capital losses. is there a "statute of limitations" on how many years i can carryover the losses? for instance, if i've got $30,000 in losses, does that mean i can report capital losses of $3000 for the next ten years?

thanks for your help.

--P

[solomon]

That is correct. See IRC 1212(b)(1).

[OtisMozzetti]

There is no statute of limitations for cap losses by individuals

There really is NO "STATUTE OF LIMITATIONS", i.e. no time limit expressed as a number of years, for taking capital losses by individuals. There is, however, a limit of $3000 ($1500 MFS) for the NET capital loss taken each year. The remaining capital loss can be carried over as long as you live until it is used up. A way to use up (benefit from) the capital loss sooner is to earn some capital gains sooner.

Should you die before the capital loss carryover is used up, only the usual amount can go onto your last tax return; i.e. none of it carries over to your estate or to your beneficiaries.

[JG EA]

To keep the loss going forward

A related question. Is filing a return necessary to keep the loss going forward. This affects a couple of my clients. They may in the near future not meet the filing requirement. Yet they have many investments and so may have sales at some point and need to use the capital losses. Is filing in the in-between years necessary?

I know we discussed this before but I came away not really being sure.

[solomon]

A related question. Is filing a return necessary to keep the loss going forward. This affects a couple of my clients. They may in the near future not meet the filing requirement. Yet they have many investments and so may have sales at some point and need to use the capital losses. Is filing in the in-between years necessary?

I know we discussed this before but I came away not really being sure.

The wording in IRC 1212(b)(1) for the carry forward loss is "succeeding taxable year."

I infer from this wording that if a return were not filed in the succeeding taxable year, then that 3,000 (or 1,500 if MFS) would be lost and the balance would remain for future years - if then filing.

If no return were filed for two years, then 6,000 or 3,000, as the filing status may be, would be lost - etc.

[JG EA]

Thank you!

[Roland Slugg]

...if a return were not filed in the succeeding taxable year, then that 3,000 (or 1,500 if MFS) would be lost and the balance would remain for future years - if then filing.

If no return were filed for two years, then 6,000 or 3,000, as the filing status may be, would be lost - etc.

This is not correct. If a return is not required to be filed, a $3,000 reduction in the loss carryover does NOT happen. In fact it doesn't happen even in some years when a return IS filed. If AGI less itemized deductions or the standard deduction is a negative amount of -$3,000 or more, none of the loss carryover is used that year. (If it's negative, but by an amount that's smaller than $3,000, some of the loss carryover is deemed used.)

There is an important exception to the above general rule: If a return is not required to be filed, but if one were filed it would show any current-year capital gains or losses, then the amount of the capital loss will change. It will decrease by the net current year's capital gain on the "would-be" return, or increase by the net current year's capital loss on the "would-be" return. For this reason I believe it is a good idea for a T/P to file a return for any such years, in order to establish for the record the correct amount of the capital loss carried forward to the following year.

[solomon]

Thanks for the correction. "Succeeding taxable year" in 1212(b)(1) references the next literal taxable year in which there is income for filing rather than necessarily chronologically. A computation verifies this.

[Snaggletooth]

More likely

To the original post:

Yes if the taxpayer lives long enough to use up all the $30,000, he gets $3000 annually with no limitation.

I'm surprised this hasn't been mentioned:

A more likely scenario is that in some year he will have capital gains, not losses. The amount of unused losses at that point first offsets the gains to the extent both losses and gains are available, THEN if there are any unused losses, up to $3000 may be claimed as capital loss in the year of occurrence.

An example always seems to cleanse the cumbersome phraseology. Assume $30,000 loss occurs in 2006, and there are no capital gain/loss transactions in 2007. Taxpayer reports a capital loss of $3000 in 2006 and 2007, leaving $24,000 available in future reportable losses.

However, taxpayer has a $10,000 capital gain in 2008. Of the remaining $24,000, firstly $10,000 is used to extinguish the large capital gain, reducing it to zero taxability. Then, taxpayer may deduct another $3000 as a net capital loss in 2008. However, only $11000
remains in carryforward of capital losses for future years.

If you are a fledgling tax preparer, welcome to our forum!!

[Titus Pullo]

Thanks. That was just the info I was looking for.

[FEDUKE404]

File 'em all!

This topic was beaten to a pulp in some earlier threads, so you may also wish to check using the "search" option above.

In a "simple" situation the $3k/year for a long time scenario is possible, especially if there are no other subsequent capital gain/loss transactions for Sch D. Most folks generally will have some capital gains along the way, either from stock sales or something as simple as annual capital gain distributions from mutual funds (Form 1099-DIV).

If you are dealing with an older client, note carefully any loss carryforward ceases with the last tax return of a decedent. Somewhat in the "use it or lose it" scenario.

It IS possible not to expend any of the annual $3k in a given year if the person has a small income, which extends the original loss carryforward even further. Most tax software is capable of tracking the carryforwards and adjustments. I am a FIRM believer in the necessity of filing a tax return each year if there are any carryforwards, and especially in this somewhat unusual scenario.

FE

[wvtaxguy]

Additional Info Sought

I have a client with over $500,000 he has been carrying forward at the $3K clip for the past several years. He lost (obviously) a ton during the dot.com bubble burst. I have been trying to encourage him to get back into investments other than the CDs and higher interest checking and savings account to help eat up these losses. He remains shell shocked. I advised him he wasn't going to live long enough to use up that size loss at the $3K rate. He remains reluctant. Maybe I would be too. He blames his "financial advisors" (a few of the big firms) and frankly I wonder why he never considered a law suit but that is another story and I'm not an attorney.

My question: Common thought in this thread is the losses are gone once he dies....no transfer of the loss to his estate or heirs. Generally, I agree with that. However, I assume the losses would transfer to his spouse if she outlives him provided the investment accounts involved were in co-ownership form. And, she would be limited to $1,500 a year. Does that sound reasonable to the community or am I missing something?

Thanks in advance for any insight.

[Titus Pullo]

I'm sorry I don't have an answer to your question, but I can relate to your client. Though I haven't yet sold any of my worthless positions, my portfolio is down 98% from investing in the Pinks. Empty promises and scams have left me holding the bag and $60K of my hard earned money is down the toilet.

That "shell shock" that you describe is exactly what I'm going through. I haven't traded a single stock since last year. But I guess the best way to get through this capital loss is to have some capital gains, as described in the above posts. I am ever more reluctant and suspicious of the market now, especially after losing so much (which could've gone towards a down payment of a house).

[Jesse]

My question: Common thought in this thread is the losses are gone once he dies....no transfer of the loss to his estate or heirs. Generally, I agree with that. However, I assume the losses would transfer to his spouse if she outlives him provided the investment accounts involved were in co-ownership form. And, she would be limited to $1,500 a year. Does that sound reasonable to the community or am I missing something?

Thanks in advance for any insight.

Hmmmm....I agree with the carryforward if jointly owned investments. I think the loss would still be limited to $3,000 a year, however would only 1/2 of the total capital loss be allocated to the spouse?

For example if you have a joint capital loss of $10,000 to be carried forward. In years after the spouse dies you will be allowed $3,000 per year but will it be from $5,000 or remain $10,000?

[Davc]

Hmmmm....I agree with the carryforward if jointly owned investments. I think the loss would still be limited to $3,000 a year, however would only 1/2 of the total capital loss be allocated to the spouse?

For example if you have a joint capital loss of $10,000 to be carried forward. In years after the spouse dies you will be allowed $3,000 per year but will it be from $5,000 or remain $10,000.

I believe that is correct.