Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Income Tax Question
Old 01-12-2010, 02:43 PM   #1
Full time employment: Posting here.
friar1610's Avatar
 
Join Date: Jun 2002
Posts: 820
Income Tax Question

I looked on the IRS web site to try to find the answer to the following question. I kinda, sorta got an answer but it was explicit enough for my comfort.

Situation: I sold several mutual funds at losses during 2009 and re-bought another fund. My purpose was less to tax-loss harvest than it was to clean up my portfolio by eliminating a few funds with relatively small balances and reinvesting in TSM which is the core of my portfolio anyway. (And they were not wash sales.) Capital gains distributions for 2009 will not come anywhere close to using up the losses I harvested. I understand that after I apply the loss to CGs/CG distributions, I can use $3000 of the loss as a write-off against ordinary income, but I will still have a hefty sum to carry over to 2010.

In a separate move, I am considering reducing my equity exposure and one fund I own has a LTCG roughly equal to the amount of the loss I won't be able to use in 2009. My understanding is that if I sell the fund with the gain in 2010, I can use all the remaining (unused) loss from 2009 against it. But I haven't been able to find that anywhere in black and white and I want to be absolutely certain there is no limitation on the amount of the loss I can use each year if I carry it over as opposed to having the loss and the offsetting gains in the same tax year.

Can anyone help? Thanks.
__________________

__________________
friar1610
friar1610 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-12-2010, 02:49 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jan 2004
Posts: 2,049
Of course this can be done. Would the instructions for Schedule D have it in writing?
__________________

__________________
eridanus is offline   Reply With Quote
Old 01-12-2010, 03:23 PM   #3
Full time employment: Posting here.
 
Join Date: Mar 2008
Posts: 637
I believe you can carry forward up to $3000 loss per year against gains. The carryover carries forward indefinately-- at this time... all things of course subject to change!
__________________
bizlady is offline   Reply With Quote
Old 01-12-2010, 04:06 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
All unused losses carry forward to the next year where they can be used up.

By "unused" I mean first offset realized capital gains, second up to $3000 of losses to go against ordinary income (ordinary income is simply income that is not capital gains).

So if you have $230,449 that are carried over to your next tax return, you get to rinse and repeat: If you have $500,000 in gains, subtract the $230,449 in losses to get your net gains and your losses are all used up. If you only have $100,000 in gains, subtract the $230,449 and you have a net loss of $130,449, so you subtract $3000 from ordinary income and you end up with a carryover loss for 2011 of $127,449.

Your carryover losses disappear when you die.
__________________
LOL! is offline   Reply With Quote
Old 01-12-2010, 05:15 PM   #5
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,930
I don't know how one becomes absolutely sure of something but maybe some participation on your part would be helpful. Try working out an example on the CG Carryover Wksht on p. D7 of the 1040 instructions here:
http://www.irs.gov/pub/irs-pdf/i1040.pdf
which is referred to in Sch D which you can also google if you wish.
__________________
kaneohe is offline   Reply With Quote
Old 01-13-2010, 07:37 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,644
I did precisely what you are talking about with the blessing of my accountant who prepared and signed the returns. That was all the proof I needed.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Old 01-13-2010, 08:42 AM   #7
Dryer sheet aficionado
 
Join Date: Mar 2007
Posts: 44
Quote:
Originally Posted by LOL! View Post
All unused losses carry forward to the next year where they can be used up.

By "unused" I mean first offset realized capital gains, second up to $3000 of losses to go against ordinary income (ordinary income is simply income that is not capital gains).

So if you have $230,449 that are carried over to your next tax return, you get to rinse and repeat: If you have $500,000 in gains, subtract the $230,449 in losses to get your net gains and your losses are all used up. If you only have $100,000 in gains, subtract the $230,449 and you have a net loss of $130,449, so you subtract $3000 from ordinary income and you end up with a carryover loss for 2011 of $127,449.

Your carryover losses disappear when you die.
Are gains/losses on equities held less than ONE year considered a capital gain/loss or treated as "ordinary income"? The reason for my question is that I had some gains on equity trades that I held less than a year in 2009 (more than $15K). I also had well over $30K in losses from other equity trades held less than 1 year. Question is: can I offset the ST Capital losses that are greater than $3K against the ST Capital gains that are greater than $3K?
Thanks in advance for your feedback
__________________
freddyw is offline   Reply With Quote
Old 01-13-2010, 08:59 AM   #8
Full time employment: Posting here.
Lakedog's Avatar
 
Join Date: May 2007
Posts: 654
Quote:
Originally Posted by friar1610 View Post
I looked on the IRS web site to try to find the answer to the following question. I kinda, sorta got an answer but it was explicit enough for my comfort.

Situation: I sold several mutual funds at losses during 2009 and re-bought another fund. My purpose was less to tax-loss harvest than it was to clean up my portfolio by eliminating a few funds with relatively small balances and reinvesting in TSM which is the core of my portfolio anyway. (And they were not wash sales.) Capital gains distributions for 2009 will not come anywhere close to using up the losses I harvested. I understand that after I apply the loss to CGs/CG distributions, I can use $3000 of the loss as a write-off against ordinary income, but I will still have a hefty sum to carry over to 2010.

In a separate move, I am considering reducing my equity exposure and one fund I own has a LTCG roughly equal to the amount of the loss I won't be able to use in 2009. My understanding is that if I sell the fund with the gain in 2010, I can use all the remaining (unused) loss from 2009 against it. But I haven't been able to find that anywhere in black and white and I want to be absolutely certain there is no limitation on the amount of the loss I can use each year if I carry it over as opposed to having the loss and the offsetting gains in the same tax year.

Can anyone help? Thanks.
You can certainly do this (see 2009 1040 instructions for schedule d, line 21 on page d-9 and also the capital loss carryover worksheet on d-7) -- I have done this for a couple of years, and just had a 6.5 hour IRS audit of 2007 and 2008 returns yesterday. The agent indicated that the large capital loss carryover was one of the items that triggered the audit -- she told me as she departed (the audit was done at my home since that was offered as an option) that it did not appear that there would be any change to either return.
__________________
Lakedog is offline   Reply With Quote
Old 01-13-2010, 09:43 AM   #9
Moderator Emeritus
Martha's Avatar
 
Join Date: Feb 2004
Location: minnesota
Posts: 13,212
Quote:
Originally Posted by freddyw View Post
Are gains/losses on equities held less than ONE year considered a capital gain/loss or treated as "ordinary income"? The reason for my question is that I had some gains on equity trades that I held less than a year in 2009 (more than $15K). I also had well over $30K in losses from other equity trades held less than 1 year. Question is: can I offset the ST Capital losses that are greater than $3K against the ST Capital gains that are greater than $3K?
Thanks in advance for your feedback
Short term capital losses first are offset against short term gains, then long term gains, and if any left, $3000 against ordinary income. The rest is carried over.


In agonizing detail:

  • Short-term losses counterbalance those expensive short-term gains. What's left at the end of Section I of Schedule D is the net short-term capital gain or loss. If there were no gains, then obviously the net would equal the total loss.
  • Long-term losses are applied to long-term gains. The result, at the end of Section II of Schedule D, is the net long-term capital gain or loss. Again, if you only have a loss, then the net is a negative number.
  • Next, you combine the short-term and long-term results. At this point, a loss in one section can offset a gain in the other section. For example, if you have a net short-term loss of $1,000 and a net long-term gain of $1,200, then you'll pay tax on only $200.
  • If the total is a gain, you'll be paying taxes on that.
  • If there's still a loss, you can deduct up to $3,000 from other income.
  • If you had a really bad year and ended up with a net loss of more than $3,000, you can carry forward the leftover portion to next year's taxes. The unused loss can be applied to next year's gains as well as up to $3,000 of earned income. A big loss can be used as a deduction indefinitely -- another important reason to keep good records.
http://www.bankrate.com/finance/mone...ax-bill-1.aspx
__________________
.


No more lawyer stuff, no more political stuff, so no more CYA

Martha is offline   Reply With Quote
Old 01-13-2010, 09:59 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
Quote:
Originally Posted by freddyw View Post
Are gains/losses on equities held less than ONE year considered a capital gain/loss or treated as "ordinary income"?
They are treated as a short-term capital gain or loss. They are not treated as ordinary income. However, the tax rate for a short-term capital gain is the same as the tax rate for ordinary income.

Quote:
Question is: can I offset the ST Capital losses that are greater than $3K against the ST Capital gains that are greater than $3K?
You can offset any ST cap loss against any ST cap gains

and if your loss is greater than your ST gains, you can offset what's left against LT gains,

and if you still have a net loss, you can offset up to $3000 of the remaining loss against ordinary income,

and if you still have a net (i.e. remaining) loss, you can carry the loss over to the next tax year.

There is no "greater than $3K" idea involved. See the detailed previous response and also fill out Schedule D today to see how it works. Do not wait to be confused about this in April.
__________________
LOL! is offline   Reply With Quote
Old 01-13-2010, 04:58 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Oct 2008
Location: Naples
Posts: 2,161
A different senario but still a tax question. Relative to the $8000 tax credit for first time home buyers, I've read all the rules governing what type of "main" home you are purchasing. These type homes include house boats, live aboard yachts, condo's, trailers, etc. It doesn't mention what you are coming from. It only says you cannot have lived in a "main" home for the past three years. This is my problem. We closed on a new main home on 12-30-09 to take advantage of the tax credit. We are coming from a manufactured home on rental property. In the past, my understanding on what is considered a "home" is if you owned the property. In Florida, everything regarding this is based on whether or not you own the property. We don't get a tax bill because the manufactured home is built in two pieces and each one has a tag just like a car. We pay registration fees annually just like a car. Don't get a tax bill because we rent the lot the house sits on. To me, this is not considered a "home" because you have to own the property. We have lived here for over three years and ready to go back to the "standard" house concept. Any thoughts on this?
__________________

__________________
JOHNNIE36 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
NY/NYC income tax question brewer12345 FIRE and Money 19 11-19-2008 11:01 AM
Income Tax Question - Travel Expense? seanmick Other topics 3 01-28-2008 07:24 PM
Tax Question: Hobby Income TromboneAl Other topics 19 12-13-2007 05:57 PM
States with no income tax renferme Life after FIRE 71 03-19-2007 04:32 PM
California Income Tax mickleover FIRE and Money 7 03-26-2006 11:42 PM

 

 
All times are GMT -6. The time now is 10:11 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.