We are almost two-thirds done with 2013 and some of you haven’t even completed your tax returns. For those of you who filed and finished your tax returns in April, most of that paperwork is neatly tucked away in your home filing cabinet. Since the stock market has run up over the past year most investors have made gains in their stock and stock mutual fund positions. However, the majority of tax payers never look at their capital losses from prior years to do effective tax planning. So just how long can you carry forward your capital gain losses?
- First, you should be aware that you can sponge up capital gains year to year against any capital losses or carry forward losses that you have on your tax return. This means if you have a carry forward loss of $30,000 from a prior year and had $30,000 of long-term capital gains here in 2013, you would essentially have a wash. This year will be an important year for many investors to keep a close eye on this because some are still carrying over losses even back from 2008.
- Second, if your losses are greater than your gains, you can deduct up to $3,000 of capital gain loss against your ordinary income. This means if you had $30,000 of total capital gain losses after exhausting all of your capital gains that would wash against those losses, you could use up to $3,000 more of that loss in this tax year ($1,500 married filing separately source irs.gov). The remaining $27,000 will be carried over to the next tax year, but you will only be able to use $3,000 each year of loss against ordinary income.
- You can carry unused capital losses forward as long as you live. That is the long and short of how long the loss will remain on schedule D of your tax return. Congress has bandied about changing this limit since it was instituted in 1977, but we haven’t seen any change up to this point.
Knowing smart money moves and strategies on how to harvest capital gains and losses can be an important part to growing your bottom line. It is recommended that you get together with your CPA to assess your positions or you can always get a free guide on tips and ideas at www.oxygenfinancial.net.
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Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS® Co-CEO and Founder oXYGen Financial, Inc. Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS.