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Old 02-19-2015, 10:46 AM   #41
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I guess the remaining question is more of an ethical question. As we sometimes said at Mega when we had thorny decisions, could we live with everything that we knew being on the front page of the local paper the next day and still hold our heads high that we had done the right thing in a difficult situation. NS will have to wrestle with that one.
Trust me, I'll have no problem sleeping well at night with this on my conscience. If the government can afford to shell out billions of dollars for "under-privileged" children in the form of grants/scholarships/loans regardless of academic achievement and ability to repay loans, then it can afford to supplement my DDs higher education given that she is an A student who dedicates herself to achieving academic excellence. I don't believe my 30 years of sacrifice so that I could ER should be free pickens for the education industrial complex. If we go back to 1970s college costs, I'll be glad to pay the full boat for my children's college education. Till then, I have no problem with society funding her inflated higher education costs. I apologize for the slight rant.

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Old 02-19-2015, 02:09 PM   #42
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I never thought there was anything ethically wrong with what Nano wants to do. I just think he is potentially caught up in a technicality, one that doesn't really make sense. I don't think it's all that straightforward, and I think there is a potential for an issue down the line, whether it be with the IRS when the carryover loss is resumed or for FAFSA falsification on a technicality.

I am virtually certain you have to reduce the carry over by the amount you would have if you claimed it (3000 + gains). Maybe the IRS is cool with you resuming it, or maybe they will be sending one of their letters when they see you claim a carryover in the future when you had none the year before, but hopefully they'll accept your explanation for the gap.

And as far as the claim that this is double taxation, that's off base. It's like having someone offer you $1 today and you turn it down, and then tomorrow asking for that $1 and them telling you the deal was only good yesterday. You didn't lose $2, you only lost $1, and that was of your own doing.

As I said, ethically, I don't think anything bad of Nano for doing this. But if it bites him later, I have no sympathy since a few of us, including a tax CPA, warned him it might be a problem. I definitely get the feeling he is taking the answers he wanted to hear out of this and ignoring the ones he doesn't. Not my business though. I'm very uncertain either way now that I understand that the capital gains are only distributions, not for 1099 reported sales.
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Old 02-22-2015, 04:55 PM   #43
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Thank you for all the replies. I feel pretty comfortable with the fact that if I have no capital gains transactions (sale of stock/funds) in the year preceding the FAFSA, then I can file the 1040A and take advantage of the Simplified Means Test. This was a planning exercise in that I will not be filing the FAFSA till Jan 2017. This means I have to plan on no fund sales for the entire year of 2016.
Don't forget that listed stocks that pay distributions with PIK (payment in kind) shares in lieu of cash dividends do provide a way to realize "capital gains" on your holdings that could use up those accumulated carryover losses.

As an example, EEQ is a subsidiary of Enbridge Energy. EEQ distributes shares in lieu of dividends. Your cost basis on the distributed shares is $0. When you sell those shares, you pay capital gains based on the difference between your cost ($0) and the price you get for them. If you are trying to avoid any transactions in 2016, you can still buy some in 2015, sell the distributed shares in December 2015 for 100% short-term gain, and use up some of those carryover losses.

The list isn't huge of companies that issue PIK dividends....but there are some out there.

Also, another thought: look for mutual funds with large undistributed long-term capital gains. Could be worth it to buy some of those - if they distribute those long-term gains (must be long-term, as short-term gains distributions are taxed as dividends) in either 2015/2016, then you can use that to offset against your losses without having to show any sales transactions.
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Old 02-24-2015, 01:31 PM   #44
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In an effort to ensure I remained within the boundaries of the law, I visited my local IRS Office today to get the definitive answer to the question of whether you are required to file a Schedule D and henceforth the 1040 if you only have a Capital Loss Carryover.

And the final answer was, "you do not have to file the Schedule D and 1040 if only reporting a Capital Loss Carryover". This is good news to me and finally puts this question to bed.
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Old 02-24-2015, 02:37 PM   #45
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You trust the IRS to give you the right answer? I have a bridge for sale...

Seriously, you took the extra step and have satisfied the ethics of all this. I give you credit for that. I hope that everything works out, and that the IRS doesn't screw you up by reporting something different to the FAFSA. After 38 years of dealing with the IRS, the lack of communications between departments and the poor quality of service we get from them is appalling.

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In an effort to ensure I remained within the boundaries of the law, I visited my local IRS Office today to get the definitive answer to the question of whether you are required to file a Schedule D and henceforth the 1040 if you only have a Capital Loss Carryover.

And the final answer was, "you do not have to file the Schedule D and 1040 if only reporting a Capital Loss Carryover". This is good news to me and finally puts this question to bed.
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