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Capital Loss tax question

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rated:
I made a bad stock investment choice resulting in a 2015 tax year long term capital loss in excess of $80,000.  I also had a short term loss last tax year 2016 of about $8,000.
Paying taxes for 2016, TurboTax deducted the maximum amount of $3,000 tax deduction.
Fast forward to this year, I have a short term capital gains exceeding the $8,000.

Previous postings on this topic indicated using the $3000 tax loss was preferred to be applied to the short term loss, but I did not understand why.
What happens to the long term tax loss when the short term capital gains is a net gain?

Bottom line when the current tax for 2017 is filed, the $3000.tax loss allowance will be against the long term tax loss.  How does that work?  I understand, unless Congress does something, I could be 20+ years resolving that.

If it matters, I retired last year.  For tax year 2017, I have collected the IRA Minimum Required Distribution (MRD).  2017 is the first year that I have begun collecting Social Security income.

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rated:
Smile - this is a good situation to be in - the long term loss will wipe out $5,000 of your short term gain. If you do your own taxes, you can put this data in last years tax software and see it in action.

rated:
PrincipalMember said:   Smile - this is a good situation to be in - the long term loss will wipe out $5,000 of your short term gain. If you do your own taxes, you can put this data in last years tax software and see it in action.
  Wipe out $5,000?  He's sitting on over $82,000 losses being carried forward.  He's going to claim a $3k capital loss this year, and carry forward a $71k loss to future years.

Long term losses apply against long term gains first, but any net loss is then applied against short term gains.  When carrying forward a loss, it drops the long/short designation entirely.

rated:
Glitch99 said:   
PrincipalMember said:   Smile - this is a good situation to be in - the long term loss will wipe out $5,000 of your short term gain. If you do your own taxes, you can put this data in last years tax software and see it in action.
  Wipe out $5,000?  He's sitting on over $82,000 losses being carried forward.  He's going to claim a $3k capital loss this year, and carry forward a $71k loss to future years.

Long term losses apply against long term gains first, but any net loss is then applied against short term gains.  When carrying forward a loss, it drops the long/short designation entirely.

  My mistake - for some reason, I saw the 80K as a gain. So the short term gain will be wiped out by the carry over losses and he can deduct additional 3K.

rated:
Glitch99 said:   
PrincipalMember said:   Smile - this is a good situation to be in - the long term loss will wipe out $5,000 of your short term gain. If you do your own taxes, you can put this data in last years tax software and see it in action.
  Wipe out $5,000?  He's sitting on over $82,000 losses being carried forward.  He's going to claim a $3k capital loss this year, and carry forward a $71k loss to future years.

Long term losses apply against long term gains first, but any net loss is then applied against short term gains.  When carrying forward a loss, it drops the long/short designation entirely.

  Thank you both.  So I do not need to keep long or short term separate after last year and continue to make as much capital gains as I am able this year and going forward without taxation assuming I do not exceed the net total loss.  The odds are very much against me exceeding the combined loss total for a few years.

rated:
Glitch99 said:   
........................  When carrying forward a loss, it drops the long/short designation entirely.

    https://www.irs.gov/pub/irs-pdf/f1040sd.pdf
see lines 6/14 of sch D.   The short/long designations are retained for carryover losses.

rated:
Kaneohe, I believe Glitch99 is correct.  I think you want to look at Part III, line 16. Long and short term losses are combined.   Line 21 then allows an additional small personal write-off and the rest (long and short losses combined) is carried forward to the next year. 

rated:
jim045 said:   Kaneohe, I believe Glitch99 is correct.  I think you want to look at Part III, line 16. Long and short term losses are combined.   Line 21 then allows an additional small personal write-off and the rest (long and short losses combined) is carried forward to the next year. 
  Yes, the losses are combined (temporarily) for the current year.    However when you do the next yrs taxes , you need to unravel the ST/LT  again via the wksht cited in Sch D.
https://apps.irs.gov/app/vita/content/globalmedia/capital_loss_carryover_worksheet.pdf     My limited experience is that the 3K excess loss that was used reduced the ST loss and 
the LT carryover loss is just the net LT loss.  Your experience can be different depending on the size of your  ST/LT gains/losses........hence the wksht so that mortals can calculate it.

Instructions from Sch D line 6:   6 Short-term capital loss carryover. Enter the amount, if any, from line 8 of your Capital Loss Carryover Worksheet in the instructions . . . . .

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