Can I defer a $3000 Schedule D Capital loss until 2020?

[MelvinWetzger]

I am filing my 2019 Federal Income Taxes. I have a pretty large Capital loss from a few years ago that results in a Schedule D Capital loss carryover and an annual capital loss of $3000 that can be claimed on line 6 of Federal tax form 1040.

But, I have little income (and no capital gains). My income is about $8000 for 2019, much less than my standard deduction of over $12000. So my taxable income on line 11b of Form 1040 is zero, even if I do not use the $3000 Capital loss. In other words, if I use the $3000 Capital loss for tax year 2019, it will be "wasted", because it does not result in a tax advantage.

My income will go up some in 2020 or 2021, because I will start to get retirement income. And the $3000 Capital loss will likely benefit me in terms of reducing taxable income (on line 11b of Form 1040) for 2020 or 2021.

QUESTION(S): But, can I defer and not use the $3000 Capital loss until a later year?

Or do I have to use the $3000 loss for tax year 2019, even though it does not help lower my taxes?

If you have an answer, can you point me to one or more references that describe what I can or cannot do?

Thank you,

M.

 

[FlyingRon]

No, you can't electively carry over the loss. You can only carry over the parts that are not allowed to be deducted. You either take it to the maximum amount allowed (the amount of capital gains, if any, plus $3000 against other income) or you lose it.

 

[Taxing Matters]

QUESTION(S): But, can I defer and not use the $3000 Capital loss until a later year?

Let's clarify the way things work. First, you may offset your capital losses against whatever gains you have. There is no limit to that. If you have a million dollars of losses and a million dollars of gain this year, you can use all your losses to offset that gain. For noncorporate taxpayers, if the losses exceed the gain, you may deduct up to $3,000 of your losses against your taxable income. That capital loss deduction is limited to the lesser of your taxable income for the year (figured without the capital loss deduction), your net capital loss, or $3,000. Let me give you three examples for each of those limitations:

1. Amy has $50,000 in capital losses for the year and $35,000 in capital gains. Her net capital loss is $15,000. She has taxable income (not counting the capital loss deduction) of $55,000. Her capital loss deduction is limited to $3,000, reducing her taxable income to $52,000. She would carry over $12,000 of capital loss to the following year.​

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2. Barry has $25,000 in capital losses for the year and $23,500 of gains. His net capital loss is $1,500. Barry has taxable income (not counting the capital loss deduction) of $37,000. Since his net capital losses are only $1,500 he uses all of it to reduce his taxable income to $35,500 and has no capital loss to carry forward. ​

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3. Finally, suppose that Cindy has $42,000 in capital losses and $30,000 in capital gains. Her net capital loss is therefore $12,000. Cindy has, however, just $2,000 in taxable income (computed without the capital loss deduction) and therefore may deduct $2,000 of the capital losses to bring her taxable income to zero. That reduces her capital loss carry forward to the next year to $10,000.​

In your case, you have zero taxable income for 2019 before you take into account the capital loss deduction because your standard deduction exceeds your total income for the year. As a result, you have no capital loss deduction to take for 2019 and your entire net capital loss is carried over to 2020. So you don't lose any of your loss here. You just don't get any benefit from the loss for 2019.

No, you can't electively carry over the loss. You can only carry over the parts that are not allowed to be deducted. You either take it to the maximum amount allowed (the amount of capital gains, if any, plus $3000 against other income) or you lose it.

It's not quite clear to me what you are saying. But to the extent you are saying that the OP must use the capital loss deduction of $3,000 on his return even though he has no taxable income this year to offset it, I disagree. The OP does not lose $3,000 of his capital loss here just because he/she has no taxable income to offset that deduction.

 

[FlyingRon]

It's not quite clear to me what you are saying. But to the extent you are saying that the OP must use the capital loss deduction of $3,000 on his return even though he has no taxable income this year to offset it, I disagree. The OP does not lose $3,000 of his capital loss here just because he/she has no taxable income to offset that deduction.

]
The capital loss comes off before the standard/itemized deductions are applied, right? It's not "taxable" income but the calculation leading to the AGI.

 

[Taxing Matters]

The capital loss comes off before the standard/itemized deductions are applied, right? It's not "taxable" income but the calculation leading to the AGI.

On the Form 1040 the capital loss deduction appears before the standard deduction and is part of the computation of adjusted gross income (AGI). But it is also necessarily part of the computation of taxable income, too, since taxable income is AGI less (1) the greater of the standard or itemized deductions and (2) the qualified business income deduction.

When the taxable income (without the capital loss deduction) is less than the capital loss deduction, you'd put in the taxable income amount for your capital loss deduction since in that case the taxable income is the limit for the deduction for that year, which will bring the taxable income to zero.

 

[davew9128]

Taxing Matters is right. If you don't otherwise have taxable income, you do not use up the capital loss to the extent it did not contribute to negative taxable income.

 

[LdiJ]

]
The capital loss comes off before the standard/itemized deductions are applied, right? It's not "taxable" income but the calculation leading to the AGI.

I had to think about it for a minute but I agree with everyone else. Yes, the 3000.00 loss amount does show on the front of the 1040 as if its being used, but if you go to the worksheet for Schedule D it will show the full loss carryforward that carried into 2019 also carrying forward to 2020.

Melvin, if you are doing your taxes manually rather than using a tax professional or using software you will still have to show the 3000.00 loss on the front of the 1040 even though you will be able to carryforward into 2020 the full amount that carried into 2019.

 

[FlyingRon]

I had to think about it for a minute but I agree with everyone else. Yes, the 3000.00 loss amount does show on the front of the 1040 as if its being used, but if you go to the worksheet for Schedule D it will show the full loss carryforward that carried into 2019 also carrying forward to 2020.

Yes, my confusion is that the line numbers on the 1040 changed between 2018 and 2019, so while I was reading the correct info for the 2019 1040, I should have been looking at the 2018 1040 to see where the worksheet numbers were being pulled from.

 

[MelvinWetzger]

Thanks to everybody, especially LdiJ. You all have helped me figure this out.

Yes, if you go to page 66 of Publication 550 for Tax year 2019, there is a worksheet, worksheet 4-1, that allows you to figure the Capital Loss Carryover from 2019 to 2020. And it is not reduced at all in my case, even though I am writing the $3000 capital loss on line 6 of Form 1040 for Tax Year 2019.

Thanks again,

M.