If you had capital losses in a prior year that exceeded your allowable deduction, you may be able to carry those losses forward and use them on a future tax return.
A capital loss carryover allows unused capital losses from previous years to offset future capital gains. If your losses exceed your gains, you may also be able to use a portion of the loss to reduce your ordinary income, subject to IRS limitations.
In short, a capital loss carryover helps ensure that losses you couldn't fully use in a previous year aren't lost forever.
What Is a Capital Loss Carryover?
A capital loss carryover occurs when your capital losses exceed:
- Your capital gains for the year, plus
- The maximum capital loss deduction allowed on your return
Any unused loss may be carried forward to future tax years until it is fully used, provided you continue to meet the applicable reporting requirements.
Example
Suppose you have:
- Capital gains: $1,000
- Capital losses: $8,000
After offsetting the $1,000 gain, you still have a net capital loss. The IRS generally allows individuals to deduct up to $3,000 of net capital losses against ordinary income each year ($1,500 if Married Filing Separately).
Any remaining unused loss may be carried forward to a future year as a capital loss carryover.
Where Do I Enter a Capital Loss Carryover?
To enter your capital loss carryover in the program:
- Go to the Federal section.
- Select Income.
- Choose Investments.
- Select Capital Loss Carryover.
Enter the carryover amounts from your prior year's tax return.
Where Can I Find My Carryover Amount?
Your capital loss carryover is generally found on:
- Last year's tax return
- Capital Loss Carryover Worksheet
- Schedule D worksheets from the prior year
If you transferred your prior-year return into the software, the carryover may already be available and automatically carried forward.
Why Is This Important?
Entering your capital loss carryover ensures you receive any tax benefit available from prior-year losses.
A carryover can help:
- Reduce taxable capital gains in future years
- Lower your overall tax liability
- Prevent unused losses from being overlooked
Failing to enter a valid carryover could cause you to miss out on deductions you're entitled to claim.