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Tax question - Capital loss exceeds income -> no carryover?
02-13-2010, 11:40 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,863
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Tax question - Capital loss exceeds income -> no carryover?
Hi all,
OK, I'm pretty familiar with how capital gains taxes work for the typical wage earning adult. In particular, I know that basically if your net losses exceed $3,000, you write off that $3K against your income and carry over the rest into future tax years.
Last year (tax/calendar year 2008), each of my three minor dependent kids had a piddling amount of qualified dividends (line 9b), larger capital losses (line 13), and nothing really else of note.
I had thought / hoped that I would write off their capital losses against their qualified dividends and then whatever was left over could be carried forward.
Looking at the tax forms, this appears not to be the case. Using example numbers on a 2008 1040, I did this:
9a - $100
9b - $100
13 - ($1,000)
22, 37, 38 - ($900)
40 - $900
41 - ($1,800)
42 and following - $0
So it looks like if you have capital losses that exceed your "income", that extra just gets lost and not used because of the phrase on line 43: "If line 42 is more than line 41, enter -0-"
On the one hand, this simplifies my life if I don't have to keep track of what I thought were carryover losses. On the other hand, this stinks that I didn't do very good tax planning in this situation.
Am I interpreting this correctly?
2Cor521
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02-13-2010, 12:16 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by SecondCor521
Am I interpreting this correctly?
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I don't believe so. I think you're entitled to carry over those losses.
After a very quick read of pub 550, it looks like you have to fill out Worksheet 4-1. Capital Loss Carryover Worksheet
Good luck.
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02-13-2010, 12:23 PM
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#3
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Thinks s/he gets paid by the post
Join Date: Dec 2009
Location: Alberta/Ontario/ Arizona
Posts: 3,393
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In Canada can only claim cap losses against cap gains. Can go back 3 years and forward indefinately. Cap gains included in income at 50%.
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02-13-2010, 04:10 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 7,863
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Quote:
Originally Posted by . . . Yrs to Go
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I took a look at your link and you appear to be spot on. Thank you!
I don't live in Canada, so the other reply doesn't apply.
2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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02-13-2010, 04:53 PM
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#5
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
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Quote:
Originally Posted by SecondCor521
So it looks like if you have capital losses that exceed your "income", that extra just gets lost and not used because of the phrase on line 43: "If line 42 is more than line 41, enter -0-"
Am I interpreting this correctly?
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Nope. On federal returns, cap losses are taken against cap gains until all the cap gains (both short & long) are gone. Then another $3000 of cap losses can be deducted from income (or until income is all gone, if income is under $3000).
The rest of the cap losses are carried forward to future tax years' cap gains and $3000 of income. Individuals can carry them forward for life but I think mutual funds have to use up theircap losses within a decade.
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02-13-2010, 05:19 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Posts: 7,863
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OK, so as long as I'm getting personal service...
My kids didn't have any income that needed to be reported in 2009. Do I need to file an informational return to carry this loss forward into 2011, 2012, etc., or can I just complete the worksheets.
Lazily yours,
2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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02-13-2010, 05:52 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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I don't have any direct experience but I think I've read that you can lose none, some, or all of your 3K annual loss allowance depending on levels of income relative to the exemption/deduction levels. At the very low income levels, it may well be that you lose nothing but that might not be true at higher income levels.
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02-14-2010, 04:48 AM
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#8
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Recycles dryer sheets
Join Date: Dec 2009
Posts: 215
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Quote:
Originally Posted by kaneohe
I don't have any direct experience but I think I've read that you can lose none, some, or all of your 3K annual loss allowance depending on levels of income relative to the exemption/deduction levels. At the very low income levels, it may well be that you lose nothing but that might not be true at higher income levels.
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This is not true as I have very high income (>$500K in some years) and I carry forward C/L. And I have a CPA doing my taxes.
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02-14-2010, 08:36 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 4,172
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Quote:
Originally Posted by chemist
This is not true as I have very high income (>$500K in some years) and I carry forward C/L. And I have a CPA doing my taxes.
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sorry for leading you astray.....I meant higher income levels than OP was talking about (which were very low)......so relatively higher (than OP) was talking about, not absolutely higher that you are referring too. I'm talking about when AGI is in the neighborhood of deductions plus exemptions so taxable income is around 0. Of course, at your higher income level, you always have income to absorb the 3K loss. At marginal income levels, that isn't true which raises the question of what happens to the rest of the 3K annual loss if you don't.
Could have been clearer in the writing.......perhaps "somewhat higher" income levels.
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02-15-2010, 09:30 AM
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#10
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,855
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The Dollar Stretcher newsletter and Bankrate.com have some interesting links on cap gains rates:
A look at the many capital gains rates
No capital gains taxes due for some investors
__________________
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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
Author of the book written on E-R.org: "The Military Guide to Financial Independence and Retirement."
I don't spend much time here— please send a PM.
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