Capital Loss Carryover Question

[OldMan56]

Hi Everyone

A question on capital loss carry over that I have not been able to get a concrete answer on.

Yearly:
W2 income = 0
Social Security Income = 20K
Dividend Income = 8K
Capital Gain (Mutual Fund) = 40K

Each year I have roughly $40,000 in capital gains in my taxable account from various mutual funds.

I also own a single stock that has ~$40,000 of unrealized loss.

This year and the following number of years I am trying to control my income come tax time.

Am I allowed to sell my single stock with a $40,000 loss and only use a portion of it each year to offset my $40k in capital gains.
Desired Approach
1. Sell all Single stock today and get 40K loss. use 10k loss in year one against 40k gain, 10k in year 2 against that years 40k gain and so on.

Or must I use all 40k of the loss to offset the 40k of gain in the year ?

If that is the case I of course will only sell a portion of the stock this year to get the 10k loss, however I am really looking to try and lock in that 40k loss and spread it over a # of years now.

Thank you for the help!
OldMan56

[HueyLD]

In that case, you should spread out the sale and generate only what you need because you cannot choose when to use the loss.

[BL]

Each year I have roughly $40,000 in capital gains in my taxable account from various mutual funds.

Is this from selling funds or from distributions not you selling them? I don't have any CGs from distributions.

Capital Losses have to be used first for off-setting CGs, even if those gains are taxed at 0%. Any remaining can be used first to off-set 3000 income, then used in the future the same way.

[OldMan56]

Thank you both for the replies.


BL - this is from distributions. bad wording from me above, they are all distributions

I am in some extremely tax inefficient american funds MFs. I never had access to a 401k, and have minimal money in any kind of tax protected account. Over 40 years of investing all of my money sits in only a few America Fund MFs, all with pretty low cost basis (especially from the past few years of stuck run up). I continue to explore getting out of these as the forced distributions are just absurd for the amount of money invested in them. However the one time tax hit is too much to handle at the moment.

Thank you
OldMan56

[jjunk]

Capital Losses have to be used first for off-setting CGs, even if those gains are taxed at 0%. Any remaining can be used first to off-set 3000 income, then used in the future the same way.

Question on this point. Say I have 50K in a mix of short and long term losses that I've been carrying over for a decade or more. I retire and all of my assets with gains are classified as long term. Is it then correct to say that the only real benefit to realizing these losses is to generate more than $78,751 (as a married filing jointly couple) because there is a 0% tax rate up until that point? Wouldnt offsetting a 0% tax gain simply mean you actually realized the original loss?

[BL]

I consider offsetting long-term CG in the 12% bracket (approx.) a waste, but there it is.
If any left, you could still get 3k off ordinary income each year.

After reading livesoft's comment following this, perhaps some of what you are calling CG are dividends. That would not be wasting or using up your carried over losses, except for the 3k per year total.

[livesoft]

One has to distinguish between the following:

1. Dividend distributions from the American Funds

2. Capital gains distributions from the American Funds (these are all long term since short-term distributions are included in #1 as ordinary dividends).

3. Capital gains and losses realized from selling shares.

I suspected you are spending the $40K in American funds distributions and not re-investing them, but if you are re-investing them, stop that and invest in something more tax efficient.