Hi,
If my 2022 Capital Loss Carryover Worksheet has, let’s say, $80K on line 8 (short term capital loss carryover for 2022), which transfers over to the Capital Gains and Losses schedule D, then does that mean I won’t have to pay any tax for 2023 on Long Term capital gains up to that amount?
Thanks!
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Depends on whether you also have any short term capital gains. Short term capital loss carryover will be applied to short term capital gains first, before being applied to long term capital gains. The net short term carryover after offsetting any short term gains will then be used to offset long term capital gains, until you’ve used up the carryover. (A similar process is used for any long term carryover - applying to long term gains first, and then to short term gains.) At that point, if you have any carryover left, up to $3,000 will be applied to your ordinary income, and the remainder of the carryover will be carried forward to the following year.
I will point out that since long term gains are taxed at capital gains rates, while short term gains are taxed at ordinary income rates, it is generally more beneficial to use carryover losses to offset short term gains and/or ordinary income, rather than using it to offset long term gains,
AJ
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Thanks AJ
I do not have any short term gains to offset the short term losses against, so it’ll just be applied to the LT gains.
Thanks again.
RB
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I have some related questions.
Do short term (and/or long term) capital losses (in excess of offsetting ST /LT gains) offset Roth Conversion distributions?
If yes to the above, then if I have short or longer term capital losses in 2023 that carryover into 2024, and no other capital gains/losses in 2024, do the carryover losses offset Roth Conversion distributions up to the full carryover amount or limited to $3000?
Thanks!
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No, other than the $3000 offset that is applied to ordinary income, since Roth conversions are taxed at ordinary income rates.
AJ
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