I have a grasp on tax loss harvesting and the wash sale rule. But I have a couple of questions that I hope someone can answer.
In a given year is the offset of capital gains by capital losses limited to the 3000 dollar limit? Example: Say I have 13000 in long term capital losses and 10,000 in long term capital gains in taxable brokerage accounts in 2023. Can the 10000 in gains be offset by 10000 in losses and then an additional 3000 in income be offset? Or is the total limited to 3000 in a particular year.
If I want to do a partial roth conversion from a traditional IRA, Can the long term capital losses ( In the taxable brokerage account) be used to offset the taxes owed on the conversion?
Be sure to keep in mind that the wash sale period for purchasing the substantially identical investment spans 30 days before and after the loss sale, for a total length of 61 days: 30 days before the sale, the day of the sale and 30 days after the sale. And that dividend reinvestment counts as a purchase.
The $3000 annual limit is on the amount of capital losses that can be applied to ordinary income (think income from work, pensions, Traditional retirement fund withdrawals (including Roth conversions), etc.). Capital losses are always applied toward capital gains first, no matter how large or small. It’s only after you have offset all of your capital gains (both long-term and short-term) in a particular year with your capital losses, and still have losses left over that you would offset $3000 in ordinary income with the losses. If you still have losses left over after that, they get carried forward to offset next year’s capital gains.
Not really. Since a Roth conversion generates ordinary income, it’s lumped in with all the rest of your ordinary income, and the $3000 offset will be applied to the total of the ordinary income.