Can I carryover an investment capital loss?

April 28, 2021 by Jean Lee Scherkey, EA
Capital Gains

I had investment capital losses over 17,000 dollars for the 2020 tax year, yet my Schedule D is only allowing $3,000 loss? Will the $14,000+ in losses be a capital loss carryover on my next income tax returns for following years?

-Mary Ellen



Dear Mary Ellen,

There is a reason why the saying “back to the coal mine” has stood the test of time. Whether it is investments or the nine to five grind, all of us are working in some type of mine, hoping that our efforts will harvest a financial bounty. But, when our endeavors become unprofitable, we look to make lemonade out of lemons and salvage what we can. When the losses on the sale of capital assets, such as stocks, investment property, and cryptocurrency are larger than the reported gains for the tax year, a taxpayer may only deduct up to $3,000 of these losses a year on their tax return. Any remaining losses are carried forward to the next tax year. Here is an example.
 

The $50,000 Benny Factor inherited in 2017 from his uncle was burning a hole in his pocket. He used his newfound fortune to buy stock in a chain of tanning salons opening in Death Valley, California. Two years later, his investment dried up, and the tanning salons closed their doors for good. Benny reported a $50,000 loss on his 2019 tax return. He had no other capital gains or losses to report. Due to the capital loss limitation, Benny could only claim a $3,000 loss on his 2019 individual income tax return. The remaining $47,000 in losses will carryforward to his 2020 tax return.


Referring to the example above, if Benny had no other investments to offset his capital loss carryover, it would take close to fifteen years for Benny to deduct all of the loss he generated from his worthless investment. Not even getting ketchup out of a new glass bottle takes that long. What if there was some way for Benny to harvest those losses and save some considerable tax?
 

Although he was his uncle’s only nephew, Benny was convinced that he was his uncle’s favorite. Several years ago, Benny was gifted a large plot of pastureland in Michigan by his uncle. In 2020, Benny received an offer he could not refuse and received a $60,000 gain on the sale. Now he is dreading the hefty tax he will owe Uncle Sam. When Benny prepared his 2020 return, instead of paying tax on a $60,000 gain, he harvested the $47,000 capital loss carryover from 2019 and reduced his taxable gain to $13,000 ($60,000 - $47,000 = $13,000). Oh, what joy!


There is nothing fun about having a loss on an investment, especially when we have worked hard to excavate the rewards. After all, we want to acquire enough wealth to live comfortably and help others less fortunate. However, when you can harvest those losses and turn them into tax savings, your financial future can look a little brighter.

Wishing you a bountiful harvest in all of your efforts and many happy returns,

Jean

SEARCH

 

Jean Lee Scherkey, EA
Learning Content Developer

 

Jean Lee Scherkey began her career at TaxAudit in 2015, and her current title is Learning Content Developer. She became an Enrolled Agent in 2005. For several years, Jean owned a successful tax practice that specialized in individual, California and trust taxation, and assisting those impacted by tax identity theft. With over fifteen years of varied experience in the field of taxation, Jean has worked at different private tax firms as a Staff Practitioner, Tax Analyst, and Researcher. Before coming to TaxAudit, she worked over two years for TurboTax as an “Ask the Tax Expert.” In addition to her work in TaxAudit’s Learning and Development Department, Jean is actively involved in the company’s ENGAGE Volunteer Program, which provides opportunities for employees to help and serve the local community.  


 

Recent Articles

Grandmother driving Grandchild
My wife drives to transport our granddaughter to our house to watch for the day. Is this to-and-from mileage deductible as a job-related expense?
Net Operating Loss
When you prepare your federal income tax return, your business may incurre a loss. Here are the tax implications if you have suffered a net operating loss.
Man hitting button to enter parking structure
As a self-employed taxpayer, you can deduct your business-related parking fees as an expense on Schedule C, Profit and Loss from Business.
Capital Gains
I had investment capital losses of over 17,000 dollars, yet my Schedule D is only allowing a $3,000 loss. Can I take the additional losses in future tax years?
This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.