Waive or Defer $3,000 Capital Loss in 2019 to 2020

[Raj1]

Since all other income in 2019 is below taxable income level, is there any way, the tax payer can defer or waive the $3,000 capital loss (out of a total cap loss of $8,000) offset in 2019 and defer as carry forward to 2020 with the balance carried forward cap loss?

In Pro Series Professional, the only way to do is to override the cell but it is not eligible for efile.

[chasetax]

take a look at capital loss carryover worksheet-I believe if the loss is not used-then the loss is carried over automatically--I have seen this on my older and lower income returns-no override req'd

[Just-Lisa-Now-]

chaestax is correct, it will carry over automatically, you don't need to do anything special.

[itonewbie · Accepted solution]

There is no ambiguity around this and PS will handled it correctly.  If you look at §1.1211-1(b)(2), you will see that it won't reduce the taxable income to below zero (even though it may appear on Line 6 that the entire $3,000 is being allowed on the return for no tax benefit).

[Raj1]

My Question/s about “Defer” Cap Loss offset of $3,000

Thanks and Update

April 7, 2020

Thanks for your time and help.

I think my question was lacking some clarity.

The Tax Payer (without any cap loss of $3,000 out of total cap loss of $8,000 for 2019) has below taxable income for 2019 and wants to find out:

Does he have the option of not having -3,000 in line 6 of 1040 in 2019, so that he can carry forward the entire cap loss of $8,000 (instead of just $5,000) to 2020 when he is supposed to have far greater taxable income and can really get the benefit of this larger carry forward against 2020 cap gains and/or cap loss offset of $3,000 in 2020.

Form 1040 Line 6 is fed by Line 21 of Sch D which cannot be altered except via Override making the tax return ineligible for EFile.

I think there does not seem to be an issue with Pro Series but it is the IRS Rule which forces to have the cap loss offset of $3,000 in 2019 whether the Tax Payer wants it or not.  There is some reference to this in Pub 550 but just want to get opinion of the community.

Any thoughts / clarifications / updates would be highly appreciated.

Thanks and Regards.

Raj1

[itonewbie]

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@Raj1 wrote:

The Tax Payer (without any cap loss of $3,000 out of total cap loss of $8,000 for 2019) has below taxable income for 2019...

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You didn't tell us what the taxable income is.  But here's how it works:

• Filing Status: Single
• Wages: $14,200
• Cap Loss: $8,000
• Other Non-Employment Income: None
• Standard Deduction: $12,200
• Cap Loss Allowed on 2019 T/R: $2,000
• Cap Loss Carryover to 2020: $6,000 ($8,000 - $2,000)

As explained in my response yesterday, Line 6 will still show -$3,000.  Nevertheless, the actual amount that will be allowed and carried forward will be -$2,000 and -$6,000, respective.

[Raj1]

Thanks for a case study with specific amounts. But my question is independent of this but still provide the following amounts of my case.

Tax Year 2019

Single 

W-2 $12,000

Bank Int $50

S/T Cap Loss $2,000

L/T Cap Loss $6,000

Total Cap Loss $8,000

So the point is without $3,000 cap loss allowed by the IRS, the person is non taxable and wants to carry forward to 2020 the entire cap loss of $8,000

[abctax55]

You don't get to pick/choose.  The loss is either used, it carried over. Look at Sch D and/or the worksheets.

[itonewbie]

@Raj1Why do you keep saying that $3,000 in cap loss will be utilized on the return?  You may like to re-read the posts and the citation given.

[Raj1]

You have mentioned that "either" used or carried over soon after "You don't get to pick/choose".

I am sorry for not clearly stating the the question which let me re-phrase:

Let us ignore and keep aside tax efficiency of the choice/decision and amount of taxable income a person has.  And let us assume there is no previous carried forward cap loss and 2019 is the first year of cap loss consisting of $2,000 short term cap loss and $6,000 long term cap loss = Total $8,000 Cap Loss.

Is $3,000 cap loss offset in 2019 in line 6 of 1040 a matter of choice or is mandatory?

[Raj1]

I am sorry for not clearly stating the question which let me re-phrase:

Let us ignore and keep aside tax efficiency of the choice/decision and amount of taxable income a person has.  And let us assume there is no previous carried forward cap loss and 2019 is the first year of cap loss consisting of $2,000 short term cap loss and $6,000 long term cap loss = Total $8,000 Cap Loss.

Is $3,000 cap loss offset in 2019 in line 6 of 1040 a matter of choice or is mandatory?

[itonewbie]

Whether there's any cap loss carried forward doesn't make a difference.  The point about choice/election had also been addressed.  You apparently did not read our previous responses and the citation of the Treas. Reg. clearly enough.

[abctax55]

"..keep aside tax efficiency of the choice/decision"

I don't know how to be more specific...  THERE IS NOT A CHOICE OR DECISION !!

[qbteachmt]

Is this where we are stuck?

Scenario 1: the capital loss is not "needed" but still is used, because there is reportable income, even though it is below a certain taxable threshold.

Scenario 2: the capital loss is not fully used, because the ending reportable income is 0 without using all of it.

Effective results:

Scenario 1 = you cannot defer using all the loss, because it hasn't taken them to 0, yet.

Scenario 2 = the unused loss is automatically carried forward, because they hit 0 and still had value in that loss to use later.

Are these the two walls we seem to be bouncing off of, back and forth?

[Raj1]

Thanks.  Your reply also has been accepted by me as solution but the button for that is not shown against your name.

[Raj1]

Thanks.  Your reply also has been accepted by me as solution but the button for that is not shown against your name.

Also, your answer and solution has been very nicely summarized you.

[Fabio]

Thank you for everyones contribution, however I am still unclear with this. 

If I have a USD 10,000 capital loss carry forward from 2019, how do I carry forward the entire amount of USD 10,000 to 2020?

On schedule D, Part III, line 21, can one enter USD 0 when filing using turbotax, or are we forced to enter the smaller of the loss on line 16 or USD 3,000, as written in the instructions?

If I am forced to enter USD 3,000 per year for 3 years and not be able to offset with any capital gains, I would only have USD 1,000 of capital losses to carry forward in 4 years.

If I have a capital gain of USD 12,000 in 5 years, with no more capital losses to carry forward, I would have to pay capital gain taxes on the full USD 12,000?  Ideally I would like to carry forward the entire amount USD 10,000 capital losses from 2019 to the year I need to use these capital losses.  With this example, I would expect to pay taxes on 12,000 (capital gains yr 2025) -10,000 (capital losses yr 2019) = USD 2,000.  Is this possible?

[qbteachmt]

You don't get to "save this for a later year."

"When you figure the amount of any capital loss carryover to the next year, you must take the current year's allowable deduction into account, whether or not you claimed it and whether or not you filed a return for the current year." (Pub 550)

I found these articles/topics for you to read:

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/do-not-need-carryover...

https://finance.zacks.com/long-capital-gains-losses-carry-forward-3552.html

Example: "For a large loss and no capital gains, your loss will carry forward indefinitely with a $3,000 reduction in the carry amount each year until it reaches zero."

[Fabio]

Thanks for the explanation and supporting links! Very effective and clear. 

[qbteachmt]

Just to be sure, then; your example of $10,000 loss from 2019 trying to "save up to use it" in 2025, means the following:

As long as the current year limit of $3,000 still applies in the upcoming years, your $10,000 loss is "already used up" in 2020 ($3,000), 2021 ($3,000), 2022 ($3,000) and 2023 ($1,000), even if the taxpayer never needs to file taxes in those years, much less, has anything to net it against.

[Raj1]

Sincere thanks and gratitude for your extra help.

[Raj1]

Great Help not leaving anything to ambiguity !  101 Cheers

[mcgee]

What about if the carry over loss is 100k and the capital gain is 10k and ordinary income is $ 0. Is 3,000 of the carry over loss still lost to ordinary income? My question is would the next years carry over loss be 90k or 87k ?

[sjrcpa]

What does the capital loss carryover worksheet show?

[mcgee]

Like say the carry over loss is from stock trading, the capital gain is from stock trading, and the ordinary income is from wages from a job.

[DoorstepMobileTax]

Many of those providing answers are not reading the question properly. The question is "can the $3,000 be deferred, or is it mandatory for $3,000 to be included in the current year as an above-the-line deduction. In other words, if the standard/itemized and other deductions would be enough to offset income to be $0 taxable, can the entire capital loss be carried forward without applying $3,000 of the loss in the current year.

The answer to your question: in each year that an excess capital loss cannot be used to offset all capital gain, a minimum $3,000 capital loss must be considered (i.e., applied on the current year tax return as an above-the-line deduction). This would be mandatory, even in the case where other deductions (i.e. HSA, itemized deduction/standard deduction) would otherwise have offset taxable income to $0.

Even if after sustaining a capital loss in a particular year you did not file a tax return, in the subsequent year you'd have to reduce the available capital gains loss by $3,000.

Example:

In tax year 2020 you sustained a capital loss of $20,000. Your gross W-2 (box 1) income of $4,000 was your only income, with no income tax withholding and no estimated tax payments. Although without the $3,000 capital loss deduction your standard deduction would have reduced your taxable income to $0 (and therefore you would not have needed to file a tax return), you'd still have to reduce the $20,000 loss by $3,000 and would only carry over $17,000 to your 2021 tax return.

Consequently, if you'd been required to file a 2020 tax return, but other deductions would have otherwise reduced your taxable income to $0, you'd still have been required to apply the $3,000 capital loss as an above-the-line deduction and carry over $17,000 to 2021.

[qbteachmt]

"can the entire capital loss be carried forward without applying $3,000 of the loss in the current year."

I'm pretty sure it's been clearly answered, and more than once:

@abctax55 

"You don't get to pick/choose."

"I don't know how to be more specific...  THERE IS NOT A CHOICE OR DECISION !!"

@qbteachmt 

I gave two scenarios and explained it gets used if they are not already to 0. I also stated, "You don't get to "save this for a later year.""

We included lots of links, so that people can learn for themselves.

And three years ago, when this was asked and answered, the OP included: "Great Help not leaving anything to ambiguity ! 101 Cheers"

But applicable info is always helpful when others come across an old topic that might be useful to them, as long as the regulations for the issue have not changed in the meantime. That's always a consideration when updating old topics.