Capital Losses

Gregory J Cook, EA, CPA

Gregory J. Cook, EA, CPA+
Accredited Tax Advisor

Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants

   



Capital Losses

Can I take a long-term capital loss (up to the $3,000 limit) against my ordinary income without any long-term capital gain?

Yes. The $3,000 capital loss limitation refers to how much net capital loss can offset ordinary income on your tax return.

Can I use a long-term capital loss carried over from a prior year to offset a short-term capital gain?

A loss carryover maintains its character as long-term or short-term and must first be used against gains, if any, in its own category, but can then offset net gains from the other category, as well as up to $3,000 of ordinary income. If, for example, your only gain or loss is the long -term capital loss carryover, then line 17 of Form 1040, Schedule D, which nets the net short-term gain or loss against the net long-term gain or loss, will apply your loss carryover against your short-term gain. After that, any remaining net loss will be allowable as a deduction against up to $3,000 of your ordinary income. The remainder will be available to be carried over to the following year as long-term loss.


Can I use a long-term capital loss to offset a short-term capital gain before using it to offset a long-term gain?

No, long-term capital gains and losses must first be combined to arrive at net long-term gain or loss before the result can be netted against the net short-term gain or loss. If you follow the Form 1040, Schedule D, Capital Gains and Losses, Parts 1 and 2, line-by-line, the form will perform the netting for you in this order.

How do I determine my gain or loss on the proceeds reported on Form 1099-B from a short sale entered into last year if I have not yet bought the stock to deliver back to my broker?
In general, you cannot determine your gain or loss until you purchase the stock that you are going to deliver to close the short sale. You still need to report the gross proceeds on Schedule D so that the total of lines 3 and 10, column (d), reconciles with all of your Forms 1099-B.

Also, in columns b and c write "short sale." In column f, write "see attached statement." In the statement, explain the details of the short sale and that it is not closed. Include your name as it appears on your return and your social security number.

Can short-term capital gains be offset with long-term capital losses?

Before a loss from one category, short or long term, can offset gain from the other category, the losses and gains from each category must be combined to arrive at a net gain or loss from that category. Then, the net gain or loss from each category is combined.

When you carry a capital loss over to the following year, it retains its character as long-term or short-term and must be first combined with the other entries in its category.

Knowing when to book a tax loss and how much tax loss to book can make a huge difference! Avoiding the "Wash Sale Rules" is also extremely important! If you are emotionally attached to a stock and absolutely cannot bring yourself to part with it, there is a way you can book the tax loss and retain your stock with minimum risk!


News and Articles from Bara Business Center



Greg Cook, EA, CPA

Podcasts by Greg
 
To listen to my audio podcasts on helpful tips for everyone regarding income tax deductions, simply click the podcast icon here. podcastYou can play or download any of the podcasts for free, or get them at iTunes.


Hiding Income Offshore

Not reporting income from foreign sources may be a crime. The IRS and its international partners are pursuing those who hide income or assets offshore to evade taxes. Specially trained IRS examiners focus on aggressive international tax planning, including the abusive use of entities and structures established in foreign jurisdictions. The goal is to ensure U.S. citizens and residents are accurately reporting their income and paying the correct tax.

Many United States (U.S.) citizens and resident aliens receive income from foreign sources. There have been recent reports about the interest of the Internal Revenue Service (IRS) in taxpayers with accounts in Liechtenstein. The interest of the IRS, however, extends beyond accounts in Liechtenstein to accounts anywhere in the world.



What is an Enrolled Agent (EA)?
An EA is an individual who has demonstrated technical competence in the field of taxation and can represent taxpayers before all administrative levels of the Internal Revenue Service.

What does the term "Enrolled Agent" mean?
"Enrolled" means EAs are licensed by the federal government. "Agent" means EAs are authorized to appear in place of the taxpayer at the Internal Revenue Service. Only EAs, attorneys and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the Treasury Department.

How can an EA help me?
EAs advise, represent and prepare tax returns for individuals, partnerships, corporations, estates, trusts, and entities with tax-reporting requirements. EAs prepare millions of tax returns in a typical year. EAs' expertise in the continually changing field of tax law enables them to be effective representatives when taxpayers are audited by the IRS.

What are the critical differences between EAs and other tax professionals?
Only EAs are required to demonstrate to the Internal Revenue Service their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all EAs specialize in matters of taxation. EAs are also the only taxpayer representatives who receive their right to practice from the United States Government. (CPAs and attorneys are licensed by the states.) Because of the difficulty in becoming an EA and keeping up the required credentials, there are fewer than 30,000 EAs in the United States.


Incorporate.com 

Anyone May Take Advantage of Our Affiliate Discounts

Simply use one of our links to receive:

QuickBooks discounts are up to 20% off MSRP
QuickBooks Checks and Forms are 10% off your entire order
Free Shipping on all purchases

QuickBooks Pro 2011 makes accounting easy with tools to organize your finances all in one place. Complete tasks like paying employees1), invoicing, bill tracking and check-writing. Track sales and expenses, and easily share this data in Word and Excel 2) With QuickBooks Pro, you’ll spend less time on routine tasks and more time on your business.

QuickBooks Organizes your Files and Makes Tax Time Easy - Save up to 20% Now + Free Shipping.



Buy QuickBooks Checks and Forms and Save 10% + Free Shipping

QuickBooks Premier has all of the great features you know and love in QuickBooks Pro, plus industry-specific, timesaving, ready-to-use reports and business planning tools tailored to help your company grow. Along with saving you time on routine accounting tasks, Premier makes it simple to monitor business performance, build forecasts and manage payables and receivables. Premier also includes tools for tracking inventory, creating purchase orders and setting pricing levels.

Order QuickBooks Premier Industry-Specific Solutions and Save 20% + Free Shipping

 

Lost money in the stock market?

 
  Individual Tax

woman shuffling tax papers

Adoption and Taxes
Charitable Gifts
Divorce and Taxes
Estimated Tax Payments
How Long Should I Keep Records?
IRS Net Worth Audit
Moving Expense
Qualifying Income
Self-Directed IRA Rules
Selling Your Home
Stock Losses
Transportation Expense
Work at Home

Income Tax

finger on a calculator

1099-B
2008 Basic Tax Law Changes
2008 Stimulus Payments
Capital Losses
Depreciation Deduction
Disposition of a Car
Foreign Earned Income
Foreign Tax Credit
History of the IRS
Related Party Transactions
Sources of Federal Tax Law
Tax Lien
Vehicle Expense Deductions
  Corporate Tax

group of people looking at computer screen

Cost Segregation
IRC Section 409A
S Corporation
Section 179 Deduction
Tax Year

Partnership-Other

hand on adding machine, other hand holding tape

Built In Gains
Filing Electronically
Information on AlaTax
IRS Interest Rates 1975-1986
IRS Interest Rates 1987-1998
IRS Interest Rates 1999-2006
IRS Interest Rates 1999-2006
IRS Interest Rates 2007-2010
IRS Publications
MACRS
Section 179 Election
Startup Costs
Tax Identification Numbers
Tax Write-Off for Trucks, Vans and SUV's
 
  Equine

equine industry

Horse Training Business
Boarding Horses
Breeding Horses

Farm Related

farm

Agriculture Tax Information
Patronage Dividends
Tobacco Growers Settlement
Agriculture Tax Information
Cancellation of Debt
Commodity Credit Corporation Loans
Weather Related Sales
Crop Insurance
Farm Income Averaging
Fuel and Road Use Tax
Items Purchased for Resale
Net Operating Losses
Patronage Dividends
Prepaid Farm Expenses
Soil and Water Conservation
Tobacco Growers Settlement