Short vs Long term capital losses and tax write offs

[wanaberetiree]

Hello all

I am still confused about how capital losses work when we file taxes.

Here is an example:
Say I have a combination of Short/Long term capital losses
100K in short
20K in long

Then I sold a position with 60K gain: 50k long term and 10k in short

How will that be reconciled for the next year's taxes?
Will I have any tax liability left in this example?

Thx

 

[COcheesehead]

Each loss is first applied against a like gain. So short vs short, long vs long. Any left over can be applied to either. Any still leftover can be carried forward, of which $3000 can be applied to ordinary income.

 

[NW-Bound]

From Intuit Web site:

Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

So, in your case, the total carryover losses of 120k are more than the total gains of 60k. Result: no tax liability, and you still carry forward 60k of losses.

You can try enter the above info in a Schedule D to verify.

 

[SecondCor521]

Hello all

I am still confused about how capital losses work when we file taxes.

Here is an example:
Say I have a combination of Short/Long term capital losses
100K in short
20K in long

Then I sold a position with 60K gain: 50k long term and 10k in short

How will that be reconciled for the next year's taxes?
Will I have any tax liability left in this example?

Thx

What COCheesehead said is correct. I'd add that the carry forwards maintain their character as either LT or ST.

In your case:

First:

100K STCL and 10K STCG net to give you a 90K STCL.
20K LTCL and 50K LTCG net to give you a 30K LTCG.

Then:

90K STCL nets against 30K LTCG to give you a 60K STCL.

Then:

$3K of that $60K STCL is applied to any ordinary income (assuming you have enough).
$57K will become a STCL carry forward and applied to next year's taxes.

...

You would have no tax liability due directly to the capital gains and losses. You might have a tax liability due to other income - for example if you have a job earning $100K, you'll probably owe taxes on that (it would only be $97K after the STCL $3K loss is applied against ordinary income).

 

[wanaberetiree]

Thank you thank you!!!

 

[wanaberetiree]

From Intuit Web site:



So, in your case, the total carryover losses of 120k are more than the total gains of 60k. Result: no tax liability, and you still carry forward 60k of losses.

You can try enter the above info in a Schedule D to verify.

It sounds that a simplified rule is - if the sum STCL+LTCL is >= STCC+LTCC for a given year then there will be no tax liability

 

[Lucie]

A similar question: Can Short term or long term losses offset real estate gains? We just sold our rental resulting in 60k gains. I read somewhere that the RE gains rate is 25%, which is different that LTG or STG rates.

 

[SevenUp]

See Schedule D and run the example scenarios there.

 

[COcheesehead]

A similar question: Can Short term or long term losses offset real estate gains? We just sold our rental resulting in 60k gains. I read somewhere that the RE gains rate is 25%, which is different that LTG or STG rates.

If your gains are above $459,000 -$517,000 total depending on how you file, you could get bumped up to the 20% level and then the 3.8% excise tax kicks in. Then add in whatever your state takes.

Capital losses can be applied, if you have any.

At $60,000, depending on the rest of your income, they could be taxed at 0.

 

[cathy63]

A similar question: Can Short term or long term losses offset real estate gains? We just sold our rental resulting in 60k gains. I read somewhere that the RE gains rate is 25%, which is different that LTG or STG rates.

Real Estate Cap Gains are either long term or short term, same as any other investment. Losses from the stock market can offset cap gains from real estate.

The 25% number you read about is the maximum rate on depreciation recapture. This only applies to rental properties with improvements (e.g. houses). You depreciate the house while it's rented out and when you sell the property later, you have to recapture that depreciation as ordinary income. You'll pay taxes on it at 10%, 12%, 22%, 24% depending on your other ordinary income. Anything left after you get to the top of the 24% bracket is taxed at 25%.

 

[SecondCor521]

A similar question: Can Short term or long term losses offset real estate gains? We just sold our rental resulting in 60k gains. I read somewhere that the RE gains rate is 25%, which is different that LTG or STG rates.

In addition to @cathy63's usual excellent response, I'd add that you may not actually end up with $60K in gains. There are additions to basis and subtractions from proceeds that I think apply to rental real estate CG. These may reduce those gains quite a bit and perhaps even to zero. I'm thinking of things like realtor commissions on the sell side. I'd look through the instructions for Schedule D, as well as IRS Pub 523 and any others related to cost basis. (@cathy63, please correct me if I'm wrong.)

 

[OnTheBeach]

The loss carryforward on capital losses apply to federal law. Each state is different. In New Jersey you can not carry forward capital losses into the future. So when I have losses , I try to harvest gains. I sell a mutual fund or stock for a gain and immediately buy it back. There are no wash sales rules on gains - only losses.

 

[Lucie]

Thank you so much for your helpful responses!

 

[WestwardBound]

Reviving for a quick comprehension check on loss carryforward use in 2022.

Assume I have 15,000 loss from prior years carried. I know I can use up to 3000 against ordinary income. Can I use any amount available against ST/LT CG incurred in 2022?

Ex: 6500 in LTCG after sale - use 6500 in CF losses to offset?

 

[COcheesehead]

Reviving for a quick comprehension check on loss carryforward use in 2022.

Assume I have 15,000 loss from prior years carried. I know I can use up to 3000 against ordinary income. Can I use any amount available against ST/LT CG incurred in 2022?

Ex: 6500 in LTCG after sale - use 6500 in CF losses to offset?

Yes, if you have a $15,000 loss from prior years and $6500 gain in ‘22, the prior loss will be applied. Then $3000 against ordinary income and any excess is carried forward.

 

[VanWinkle]

Each loss is first applied against a like gain. So short vs short, long vs long. Any left over can be applied to either. Any still leftover can be carried forward, of which $3000 can be applied to ordinary income.

Perfect explanation!! Easy to understand which is unusual with tax law.

 

[SecondCor521]

Reviving for a quick comprehension check on loss carryforward use in 2022.

Assume I have 15,000 loss from prior years carried. I know I can use up to 3000 against ordinary income. Can I use any amount available against ST/LT CG incurred in 2022?

Ex: 6500 in LTCG after sale - use 6500 in CF losses to offset?

You can, and in fact generally you must.

 

[NW-Bound]

You can, and in fact generally you must.

Yes, you have to.

Say, if you have a long-term gain that can benefit from 0% cap gain tax, you may think "Because I owe no tax anyway, why don't I defer previous year's cap loss, and save it to offset gains in the future when I exceed the 0% cap gain tax bracket".

No, the law does not allow you to save the cap loss from previous years, and apply it in future years when it becomes more advantageous.

 

[WestwardBound]

Thanks all.