Back in 2000 and 2001, I had short term capital losses that exceeded the 3000 dollar limit.
Each year, I've been able to deduct 3000 dollars since my short term gains have been minimal.

I still haven't used up all my 2000 and 2001 short term losses.

I had some long term gains in 2000, but none since then.

Do you keep track of long term and short term losses separately?

As as example, lets say I have a clean slate in 2001.

Then, I lost 50,000 dollars, short term in 2002.
In 2003, I made 30,000 dollars long term. There were no short term gains in 2003.
Then in 2004, I made 10,000 short term, no long term gains.

What would my 2003 and 2004 tax situation be?


Thanks, Dave.:confused:

Dave:

It makes no difference whether the loss is short-term or long-term once you are in carryover mode.

The loss offsets any gain experienced in future years, or $3,000 per year, until you use it up.

If you need my professional tax help, contact me at [email protected].

Dave:

It makes no difference whether the loss is short-term or long-term once you are in carryover mode.

The loss offsets any gain experienced in future years, or $3,000 per year, until you use it up.

Of course the federal government disagrees with you. In Publication 550 on p.66, which you can find here:

http://www.irs.gov/pub/irs-pdf/p550.pdf

It says:

When you carry over a loss, it remains long
Term or short term. A long-term capital loss you
Carry over to the next tax year will reduce that
Year’s long-term capital gains before it reduces
That year’s short-term capital gains.

Therefore, if you have $50k in long term losses that you are carrying over, and the next year you have $50k in short term gains and $50k in long term gains, then the carried over losses will offset the $50k in long term gains, and you will owe taxes on $50k in short term gains. On the other hand, if the carried over losses were short term losses, then the losses would offset the $50k in short term gains, and you would owe taxes on $50k in long term gains.

Which would you rather pay? Taxes on $50k in long term gains or $50k in short term gains?

You are correct. I assumed that future writeoffs would be against ordinary income, not future gains, hence making the type of loss irrelevant.

My error.

Loss from sale of shares is capital loss reported on schedule D (Form 1040). You can use your total net loss to reduce your income by up to $3,000. You can carryover the unused part to the next year and treat it as if you had incurred in that next year. When you carry over a loss, it remains long term or short term. A long term capital loss you carry over to the next tax year will reduce that year's long-term capital gains before it reduces that year's short-term capital gains. When you are figuring your capital loss carryover, use your short-term capital losses first. You must use a capital loss carry forward (up to $3000) whether you need it or not.