[hoopers2]

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:

[AtlantaTaxExpert]

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].

[7stud]

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?

[AtlantaTaxExpert]

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.

[MukatA]

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.