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Capital Loss Carry Fwd
Old 10-16-2012, 10:02 AM   #1
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Capital Loss Carry Fwd

Is there a limit to how long you can carry forward a loss for the purpose of offsetting future gains, i.e. use some this year, some next, some x yrs from now?

Thx...
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Old 10-16-2012, 10:05 AM   #2
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Originally Posted by BOBOT View Post
Is there a limit to how long you can carry forward a loss for the purpose of offsetting future gains, i.e. use some this year, some next, some x yrs from now?

Thx...

No limit.
However, my concern is that rules can change over time.
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Old 10-16-2012, 10:54 AM   #3
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AFAIK, the IRS regulations do NOT say you "must" use a capital loss carryover against gains, instead the wording is of the "can" and "may" variety. Under that wording, if in 2012 you have carryover losses from prior year(s), rather than apply them against 2012 gains, you can save the losses into tax year 2013 when they will be more valuable as gain offsets if tax rates rise as currently scheduled.
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Old 10-16-2012, 10:59 AM   #4
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If you are worried...

One way around this is to sell (or trade) other appreciated assets that will throw off capital gains. In this manner the capital losses can counterbalance the gains.

- Death and Taxes...
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Old 10-16-2012, 11:59 AM   #5
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Originally Posted by GrayHare View Post
AFAIK, the IRS regulations do NOT say you "must" use a capital loss carryover against gains, instead the wording is of the "can" and "may" variety. Under that wording, if in 2012 you have carryover losses from prior year(s), rather than apply them against 2012 gains, you can save the losses into tax year 2013 when they will be more valuable as gain offsets if tax rates rise as currently scheduled.
I do not think that is true... if you do not use them for the current year, there is nothing to start with the next... IOW, you use the previous years tax return to calculate how much loss carryover you have...

But I could be wrong....



Edit to add:

From the IRS... I bolded the sentence...

"Short-term and long-term losses. When you carry over a loss, it retains its original character as either long term or short term. A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. A long-term capital loss you carry over to the next year reduces that year's long-term gains before its short-term gains.

If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit"
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Old 10-16-2012, 12:04 PM   #6
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I do not think that is true... if you do not use them for the current year, there is nothing to start with the next... IOW, you use the previous years tax return to calculate how much loss carryover you have...

But I could be wrong....
+1
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Old 10-16-2012, 12:15 PM   #7
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Originally Posted by Texas Proud View Post
I do not think that is true... if you do not use them for the current year, there is nothing to start with the next... IOW, you use the previous years tax return to calculate how much loss carryover you have...

But I could be wrong....

"
+2

In order to carry forward you need to enter them on schedule D and that forces them to be used first to offset current year gains.
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Old 10-16-2012, 02:15 PM   #8
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What you don't use to off set gains can be used to reduce taxable income but only at a $3000 per year rate. I harvested losses in 2008 and have another 20 years to take a $3000 deduction. At some point I'll probably take some of my profits to off set these losses. As long as the LT gains are favorably taxed, I'd rather reduce my marginal income tax rate on regular income.
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Old 10-16-2012, 02:40 PM   #9
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In order to carry forward you need to enter them on schedule D and that forces them to be used first to offset current year gains.
Actually, the regulations don't say you must do that to carry the losses forward. I've done such skip-a-year carryovers before, and the IRS did not question them. Since it means I'm paying more tax in the current year, they seem to be content.
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Old 10-16-2012, 03:29 PM   #10
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Actually, the regulations don't say you must do that to carry the losses forward. I've done such skip-a-year carryovers before, and the IRS did not question them. Since it means I'm paying more tax in the current year, they seem to be content.

Just because the IRS did not question it does not mean you are doing it correctly...

You might not be paying all taxes due since you might have had to waste $3,000 of loss on a year when you did not pay taxes at all....


As an example, the definition for basis includes a deduction for depreciation 'allowed or allowable'.... if you took too much depreciation in previous years, you can not say that your basis is higher because I should not have taken depreciation.... and if you did not take any depreciation, well, tough luck, it was 'allowable'... so, if you sell an asset you might have to recognize recapture of depreciation which you never took...




Edit to add.... Just checked again.... and the form from the IRS say to use the loss from the last years tax return to bring forward the loss with no reference to previous years... so, if you did not put that loss on for a year, then from what the IRS says you lose it for all years going forward...

I hope you do not get audited and find out that you lost carryforward losses just to try and save a buck...
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Old 10-16-2012, 04:45 PM   #11
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Just because the IRS did not question it does not mean you are doing it correctly...

You might not be paying all taxes due since you might have had to waste $3,000 of loss on a year when you did not pay taxes at all....


As an example, the definition for basis includes a deduction for depreciation 'allowed or allowable'.... if you took too much depreciation in previous years, you can not say that your basis is higher because I should not have taken depreciation.... and if you did not take any depreciation, well, tough luck, it was 'allowable'... so, if you sell an asset you might have to recognize recapture of depreciation which you never took...




Edit to add.... Just checked again.... and the form from the IRS say to use the loss from the last years tax return to bring forward the loss with no reference to previous years... so, if you did not put that loss on for a year, then from what the IRS says you lose it for all years going forward...

I hope you do not get audited and find out that you lost carryforward losses just to try and save a buck...
That is the same guidance I have gotten from the IRS. In fact, I have had TaxAide returns adjusted when the preparer put in a carryforward loss that did not reconcile to the prior year. The IRS sent the taxpayer a letter. In that case, we amended the prior year return to include the carryforward and then submitted this to the IRS along with an explanation for the current year.
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Old 10-16-2012, 04:55 PM   #12
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I agree that you must bring your capital losses forward from year to year (every year) to not only offset gains, but then I also beleive you MUST use $3,000 each year against your regular income - until the losses are depleted.
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Old 10-16-2012, 05:04 PM   #13
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I agree it does sound unusual. If you read the IRS regs you may be surprised like I was.
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Old 10-17-2012, 09:59 AM   #14
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I agree it does sound unusual. If you read the IRS regs you may be surprised like I was.

I think you might be reading that the losses my be carried forward to later years indefinitely as meaning you can choose which years you get to use them...

That is false thinking.... if you have a carryforward, unless there is specific language that you can make a choice in which year to use them (and I do not know of any examples) you must use it in the next year or you lose it...

Again, take a look at my example of depreciation. The IRS talks about allowed or allowable... you could have taken $3K per year on your tax return... if you did not, then you do not get to carry the full amount going forward... you use it or lose it....

But, since you have gotten away with it I am sure that you will not change your mind...




OK... looked it up for you... note that they say you take it in the suceeding taxable year.... but, show me what you read and maybe show me I am wrong....

§*1.1211-1***Limitation on capital losses. :: PART 1--INCOME TAXES :: Title 26 - Internal Revenue :: Code of Federal Regulations :: Regulations :: Law :: Justia

(iii) Carryover of certain long-term capital losses not utilized in computation of transitional additional allowance. If for a taxable year beginning after December 31, 1969, the transitional net long-term capital loss component determined as provided in subdivision (ii) of this subparagraph exceeds the amount of such component applied to the transitional additional allowance for the taxable year as provided by subdivision (i) of this subparagraph and subparagraph (4)(ii) of this paragraph, then such excess shall for the purposes of this subparagraph be carried to the succeeding taxable year as long-term capital losses from taxable years beginning before January 1, 1970, for utilization in the computation of the transitional additional allowance in the succeeding taxable year as provided in subdivisions (i) and (ii) of this subparagraph. In no event, however, shall the amount of such component carried to the following taxable year as otherwise provided by this subdivision exceed the total of net long-term capital losses actually carried to such succeeding taxable year pursuant to section 1212(b) and §1.1212–1(b).
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Old 10-17-2012, 10:18 AM   #15
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Is there a limit to how long you can carry forward a loss for the purpose of offsetting future gains, i.e. use some this year, some next, some x yrs from now?

Thx...
Capital losses can be carried forwards until the death of the taxpayer who incurred them. At the death of a taxpayer, their capital loss carry forward also dies. In the case of a jointly held asset which generated the loss, half of the capital loss belongs to each spouse.

So, it may not make sense to accumulate huge capital loss carry forwards if there is longevity concern.
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Old 10-17-2012, 02:23 PM   #16
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I agree it does sound unusual. If you read the IRS regs you may be surprised like I was.
I would be interested in seeing what you are reading. Like all of the others, my impression is that you need to use the loss carryovers each yr. Using them, however, is not necessarily the same as using them up or losing them. Depending on circumstances, you may use lose some or none of them if your income is low enough.
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Old 10-17-2012, 02:52 PM   #17
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Originally Posted by GrayHare View Post
AFAIK, the IRS regulations do NOT say you "must" use a capital loss carryover against gains, instead the wording is of the "can" and "may" variety. Under that wording, if in 2012 you have carryover losses from prior year(s), rather than apply them against 2012 gains, you can save the losses into tax year 2013 when they will be more valuable as gain offsets if tax rates rise as currently scheduled.
They say "may" and "can" because you don't have to carry your capital loss into the next year. But I agree with the others. If you don't enter them on the next year's tax forms they're gone forever. Seems like an easy check for the IRS, so getting away with it lends a little credibility to your assertion. Good luck, but I'm not trying it.
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Old 10-17-2012, 03:25 PM   #18
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from p. 70 pub 550:
"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."

To me that sounds like using the loss carryover in any particular yr might be a may/can option but the calculation of how much you can subsequently carryforward to any subsequent yr is not affected by that may/can option but is predetermined by what a "normal" person would/should do. In this sense, it sounds completely analogous to the depreciation example given earlier ......where you can choose to use it or not in any particular yr but IRS will be reducing your basis by that amount regardless of whether or not you choose to use it.
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Old 10-17-2012, 03:28 PM   #19
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Seems like an easy check for the IRS, so getting away with it lends a little credibility to your assertion. Good luck, but I'm not trying it.
I don't know if getting away with it adds credibility to the assertion or whether it just shows that IRS is not this fearsome invincible monster w/ unlimited resources. Still I ain't trying it either.
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Old 10-17-2012, 05:03 PM   #20
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Originally Posted by kaneohe View Post
from p. 70 pub 550:
"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."
kaneohe - good find, that's the first "must" quote. I don't see that the regs support that, but the subparagraphs there become very convoluted, especially without proper indenting. I suspect the 2011 pub 500 wording is new; I do not recall it from a few years back when I had studied the matter.
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