Carry over losses

[utrecht]

Im confused about the $3000 annual limit on carry over losses. Does that only apply to writing off losses against income? More importantly, if I have $20,000 in capital gains this year, can I write off the entire $20,000 if I have $20,000 in carry over losses from previous years?

Im trying to reallocate some money from stocks to bonds but if I do I will have significant capital gains. I'm trying to figure out if they will be cancelled out by carry over losses from previous years or if I will take a big tax hit.

 

[LOL!]

There is no limit on carryover losses. Those are losses which get carried over to the next tax year.

In the current tax year, any excess losses (i.e. net losses) go to 2 different places:

1. Up to $3,000 loss goes on the first page of Form 1040 to reduce your AGI.
2. Any more than $3,000 becomes a carryover loss carried over to the next tax year.

The carryover loss from previous years goes on Schedule D and will be used in the calculation for net capital gains or losses. Then the process will begin anew.

If you have $20,000 of carryover losses from last year, then they may be used to offset capital gains this year.

 

[utrecht]

Thanks.

 

[jebmke]

If you have $20,000 of carryover losses from last year, then they [-]may[/-] must be used to offset capital gains this year.

Slight modification. You can't decide to not use the carryover losses against this years gains.

 

[Rustward]

Slight modification. You can't decide to not use the carryover losses against this years gains.

Well, technically, you can choose not to use carryover losses in any tax year. The caveat is that if you choose not to use them, you cannot carry those losses forward to future years.

 

[LOL!]

Slight modification. You can't decide to not use the carryover losses against this years gains.

Thanks!

I was trying to hedge all possibilities. For instance, maybe one has no gains this year to offset? In such a case, up to $3,000 of the carryover losses (maybe there are only $1776 of carryover losses?) is "used up" to offset ordinary income and the rest (if any) gets carried forward to the next tax year.