From 24/7 Wall St. · David Beren · · 1m 20s
Tax Loss Carryforward Explained
A $140,000 stock loss from 2008 can only offset $3,000 yearly until it erases $110,000 of gain when selling a rental.
In brief
A $140,000 stock loss from 2008 can only offset $3,000 yearly until it erases $110,000 of gain when selling a rental. A person who lost $140,000 in the 2008 crash can only deduct $3,000 yearly against ordinary income, but selling a rental property will erase $110,000 of capital gains from the unused loss. Originally…
The 2008 Stock Loss
A person lost $140,000 in the 2008 stock market crash.
Annual Deduction Limit
The tax code allows only $3,000 of that loss to be deducted yearly against ordinary income.
Carryforward Rules
Unused capital losses can be carried forward until completely used up by the IRS.
Gain Offset Potential
When selling a rental property, the unused loss can erase $110,000 of capital gains in one year.
Depreciation Impact
Depreciation gains become unrecaptured section 1250 gain, taxed at up to 25%.
Tax Trap for Retirees
Carried losses expire at death, so retirees must sell assets before they expire to use the full benefit.
Proof of Loss
The IRS requires old tax returns and broker records to prove a loss nearly two decades old.
Selling Strategy
Investors should map which appreciated holdings to sell against the carryforward to maximize tax savings.
The big picture
A person who lost $140,000 in the 2008 crash can only deduct $3,000 yearly against ordinary income, but selling a rental property will erase $110,000 of capital gains from the unused loss.
