Capital Loss Carryover: Can be used with LT or ST Gain?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

Capital Loss Carryover: Can be used with LT or ST Gain?

Postby Ozonewanderer » Sat Apr 06, 2013 1:11 am

Is my understanding correct that ultimately Long Term capital loss carryover or Short Term capital loss carryover can be applied to offset either long term gain or short term gain? If so, does it matter whether I choose to sell a security with a long term gain or a short term gain?

I was going to sell some shares of an ETF, but it was going to be a short term gain if I sold today and a long term gain if I waited one more day. I decided to wait to get the long term gain, but I'm not sure that it really makes any difference, does it?
User avatar
Ozonewanderer
 
Posts: 565
Joined: Mon Apr 12, 2010 1:27 am
Location: Central NY, South FL

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby Default User BR » Sat Apr 06, 2013 2:06 am

Whether the losses are carryover or newly generated, ST losses are first applied to ST gains, and LT losses to LT gains. Then if there is a gain in one category and a loss in the other the remaining loss is applied to the remaining gain.

Get a copy of Schedule D and look at some examples.


Brian
Default User BR
 
Posts: 7503
Joined: Mon Dec 17, 2007 8:32 pm

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby kaneohe » Sat Apr 06, 2013 3:52 am

If your loss carryover is larger than your gain, you will have a net loss so it doesn't matter.

If your gain is larger than your loss carrryover, you will have a net gain. If the gain is ST, the net gain is ST and taxed at ordinary income rates. If the gain is LT, the net gain is LT and taxed at LTCG rates so there is a difference. This simple example is if your loss carryover is either ST or LT and your gain is either ST or LT. In reality you might have loss carryovers that are both LT and ST and the same with your gains. In that case, the end result can be an intermediate case, having both ST and LT components of gain.

Following Sch D as Brian said is a good way to see this but you will also have to go through the qualified dividends and capital gain wksht or use a tax calculator or software to see how it works out. http://www.hrblock.com/free-tax-tips-calculators/tax-estimator.html?fil_st=1&wages=&tpage=50
kaneohe
 
Posts: 2431
Joined: Mon Sep 22, 2008 1:38 pm

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby Ozonewanderer » Sat Apr 06, 2013 11:07 am

I think I understand. So if I rephrase the question: so long as my total capital losses exceed my total gains, then it doesn't matter if my gain is long term or short term or both, correct?
User avatar
Ozonewanderer
 
Posts: 565
Joined: Mon Apr 12, 2010 1:27 am
Location: Central NY, South FL

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby kaneohe » Sat Apr 06, 2013 1:09 pm

Correct......it's always useful to confirm with a tax calculator or software like the one given in the link above.
You can input a few numbers to see how things change. Yesterday I put in simple examples like loss carryover 50K ( either ST or LT)
and gain 100K (either ST or LT). You then get a 2 x 2 matrix of results and perhaps get to see patterns. You can also model something
closer to your situation.
kaneohe
 
Posts: 2431
Joined: Mon Sep 22, 2008 1:38 pm

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby grabiner » Sun Apr 07, 2013 12:26 am

Ozonewanderer wrote:I think I understand. So if I rephrase the question: so long as my total capital losses exceed my total gains, then it doesn't matter if my gain is long term or short term or both, correct?


This is almost correct. If you have $10,000 in long-term losses and $10,000 in short-term losses, and you have a $10,000 gain this year, you will carry over $7000 in capital losses to next year. However, if your gain this year is long-term, it will offset the long-term losses, and the loss you carry over to next year will be short-term; if your gain this year is short-term, the loss you carry over to next year is long-term.

And whether you carry over a long-term or a short-term loss to next year may affect the tax you owe next year, if you have both long-term and short-term gains in the same year and your gains exceed your losses.
David Grabiner
User avatar
grabiner
Advisory Board
 
Posts: 12796
Joined: Wed Feb 21, 2007 12:58 am
Location: Columbia, MD

Re: Capital Loss Carryover: Can be used with LT or ST Gain?

Postby Ozonewanderer » Sun Apr 07, 2013 12:59 am

Thank you, all.
User avatar
Ozonewanderer
 
Posts: 565
Joined: Mon Apr 12, 2010 1:27 am
Location: Central NY, South FL


Return to Personal Finance (Not Investing)

Who is online

Users browsing this forum: Google [Bot], midareff and 39 guests