Tax question for the FIREd

[madatrub]

Quick one I've been thinking about. If I have significant carryover losses, can this positively impact me going into retirement?

In my early days, me and DW had an investment that we experienced a significant loss in, It would take decades to reclaim that and use up that loss at the $3,000 per year max.

Im not clear on it, but after retirement we will be taking more capital gains as income and Im curious of the tax implications of such.

Are there any alternatives to consider?

 

[corn18]

Quick one I've been thinking about. If I have significant carryover losses, can this positively impact me going into retirement?

In my early days, me and DW had an investment that we experienced a significant loss in, It would take decades to reclaim that and use up that loss at the $3,000 per year max.

Im not clear on it, but after retirement we will be taking more capital gains as income and Im curious of the tax implications of such.

Are there any alternatives to consider?

56, retired last year, living off of taxable account until it runs out and then either 401k withdrawals or Roth.

I plan to use my carryover to offset capital gains incurred when I make my withdrawal from taxable account for my cash to fund expenses in 2023. Sure comes in handy, I guess.

Eventually, I won't have any taxable left if everything goes right, so I guess at that point I will just take the $3000 offset to ordinary income.

 

[madatrub]

56, retired last year, living off of taxable account until it runs out and then either 401k withdrawals or Roth.

I plan to use my carryover to offset capital gains incurred when I make my withdrawal from taxable account for my cash to fund expenses in 2023. Sure comes in handy, I guess.

Eventually, I won't have any taxable left if everything goes right, so I guess at that point I will just take the $3000 offset to ordinary income.

Thanks Corn, I guess since I'm not retired yet it may benefit me more to invest in more taxable and less 401k in order to create more capital gains to offset with losses then.

 

[RunningBum]

Keep in mind that you have to use it against any capital gains (short or long term) that you have no matter how large the gains are. So if you have a huge capital gain one year you could use it all up. Or if you take no gains, you take a $3,000 reduction against your regular income.

I've been avoiding any capital gains and taking the $3K reduction to help keep with ACA subsidies, especially important when there is a cliff.

An alternative use could be to use the carryover loss to sell tax inefficient holdings and buy more efficient holdings, if that helps.

It sounds like you're looking to sell some taxable investments, each year perhaps, and offset the gains with the carryover loss. That works well too. You still get (have) to take a $3000 income reduction as well.

 

[Sunset]

Thanks Corn, I guess since I'm not retired yet it may benefit me more to invest in more taxable and less 401k in order to create more capital gains to offset with losses then.

Possibly the opposite.

Using large chunks of the loss to offset gains, is somewhat a waste if the LTCGs are at 0% taxation, and still a bit of a waste if they are in the 15% tax rate.

Better to plan to pull out of IRA or have interest of at least $3K of fully taxable income to use the $3K yearly deduction.
Naturally this will take many years for a large loss.

 

[madatrub]

Thats part of the problem. The loss is large, so I can hope to offset in order to use. One thing that may take a good chunk out of it is the sale of a rental property as we enter into retirement, depending on how the market goes in the next 10 years.

 

[gauss]

It can get tricky for a married couple who files jointly.

If one spouse dies, the surviving spouse does not get the deceased spouses share of the loss.

The deceased spouse's share of the loss dies with the spouse.



Here is a reference: https://www.thetaxadviser.com/issue...ouple sell securities,and can be carried over.
-gauss

 

[RE2Boys]

Keep in mind that you can't choose to skip a year in claiming the carry forward losses. You must take the carry forward losses in each subsequent year.

 

[pb4uski]

It can get tricky for a married couple who files jointly.

If one spouse dies, the surviving spouse does not get the deceased spouses share of the loss.

The deceased spouse's share of the loss dies with the spouse.



Here is a reference: https://www.thetaxadviser.com/issue...ouple sell securities,and can be carried over.
-gauss

But it also says "...that carryover is lost if not absorbed in the joint return filed for the year of death..." so if the surviving spouse is aware of the issue they could just do a bunch of gains trading before the end of the calendar year to use the loss carryover rather than have it be lost... right?

 

[COcheesehead]

Carry over losses = opportunity for gain harvesting.