Capital Loss Carryover: Definition, Rules, and Example (2024)

What Is a Capital Loss Carryover?

Capital loss carryover is the net amount of capital losses eligible to be carried forward into future tax years. Net capital losses (the amount that total capital losses exceed total capital gains) can only be deducted up to a maximum of $3,000 in a tax year.

Net capital losses exceeding the $3,000 threshold may be carried forward to future tax years until exhausted. There is no limit to the number of years there might be a capital loss carryover.

Key Takeaways

  • Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year.
  • Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.
  • Due to the wash-sale IRS rule, investors need to be careful not to repurchase any stock sold for a loss within 30 days, or the capital loss does not qualify for the beneficial tax treatment.
  • Capital loss carryovers give taxpayers flexibility as to when to use them to benefit from losses.
  • Capital losses are reported on Schedule D.

Understanding Capital Loss Carryover

Capital loss carryovers allow a taxpayer to capture losses from one period and use them in a future income tax period. Capital loss tax provisions lessen the severity of the impact caused by investment losses.

However, the provisions do not come without exceptions.Investors must be careful of wash sale provisions, which prohibit repurchasing an investment within 30 days of selling it for a loss. If a repurchase occurs, the capital loss cannot be applied toward tax calculations and is instead added to the cost basis of the new position, lessening the impact of future capital gains.

Tax-Loss Harvesting

Tax-loss harvesting provides a means of improving the after-tax return on taxable investments. It is the practice of selling securities at a loss and using those losses to offset taxes from gains from other investments and income.

Depending on how much loss is harvested, losses can be carried over to offset gains in future years.Tax-loss harvesting often occurs in December, with Dec. 31 being the last day to realize a capital loss.

Taxable investment accounts identify realized gains generated for the year, so the investor seeks to find unrealized losses to offset those gains. Doing so allows the investor to avoid paying as much in capital gains tax. If the investor wants to repurchase the same investment, they must wait 31 days to avoid a wash sale.

For example, suppose a taxable account currently has $10,000 of realized gains that were made during the calendar year, yet, within its portfolio is ABC Corp stock with an unrealized loss of $9,000.

The investor may decide to sell the stock prior to the end of the year in order to realize the loss. If the ABC Corp stock was sold on or prior to Dec. 31, the investor would realize $1,000 ($10,000 gains - $9,000 ABC Corp loss) in capital gains. Abiding by the wash-sale rule, if the stock was sold on Dec. 31, the investor would need to wait until Jan. 31 to repurchase it.

Advantages and Disadvantages of Capital Loss Carryover

Pros of Capital Loss Carryover

  • The potential for tax savings is the main benefit of capital loss carryovers. You can lower your overall taxable income by using capital losses from prior years in subsequent years. Your tax liability and potentially your highest tax rate may decrease as a result.
  • Capital loss carryovers provide you the freedom to choose when to use your losses. Depending on your unique tax planning requirements, you can decide when to use the carryover to offset future capital gains or ordinary income. In a year when you expect to have more capital gains or when your tax bracket is higher, for instance, you can strategically opt to employ the carryover. Since capital loss carryovers may be carried forward indefinitely, you can also potentially improve your overall tax situation and manage your tax liabilities over time.
  • Carryovers of capital losses might be helpful when planning your investment strategy. You can reduce the total tax impact of your investing activities if you experience sizable capital losses in a single asset class or investment by offsetting those losses against capital gains from other investments. For this reason, you may be more inclined to make riskier investments knowing there are potential tax benefits that may help you offset high gains in other areas.

An individual's capital loss carryover expires at their death. However, it can be put to use in the final tax return filed for that person.

Cons of Capital Loss Carryover

  • The total amount of capital losses written off in a single tax year is subject to restrictions. Beyond these thresholds, all excess losses must be carried over to subsequent years. This implies that it might take several years to use up a sizable capital loss carryover.
  • Relevant tax laws and regulations are subject to change. Although capital loss carryovers are typically permitted, future tax law changes could impose limitations or change the regulations governing their use. Long-term tax planning that relies on carryovers may be more difficult as a result of this uncertainty.
  • You can't use carryover losses to lower a tax bill if you don't have capital gains or taxable ordinary income. The inability to use carryovers due to this restriction may result in a longer period of time before the tax advantage can be used and tax benefits are realized.
  • There is an administrative burden to consider with capital loss carryovers. You must keep correct records and documentation in order to support your capital losses and carryovers. This comprises the cost basis details, purchase and sell transaction records, and any changes made to determine the losses. This information may take years to materialize, requiring documentation every step of the way.


  • Often results in tax savings, as otherwise unbeneficial losses can be used in future periods

  • Results in somewhat flexible timing, as carryovers can be used in future periods when it is more beneficial

  • May be used in long-term tax planning strategies

  • May help guide investment decisions, as investors can still benefit from losses


  • Can only be deducted up to certain limits each year, making it potentially a long time before a full carryover can be fully recognized

  • Relevant tax laws may change, negatively impacting long-term tax strategies

  • Can only be used in periods where an investor also has capital gains or ordinary income to offset

  • Can be an administrative burden as details must be tracked over time

When to Realize and Claim a Capital Loss Carryover

To begin offsetting within the same tax year, you must subtract any capital losses from any capital gains you have in the year in question.

Accordingly, if you have both capital gains and losses in a given year, you should use the losses to reduce or completely wipe out your taxable capital gains for that year. If your capital losses for the year are greater than your capital profits, you can carry the unused losses forward to subsequent tax years.

In those subsequent years, you can claim a capital loss carryover when you have capital losses that exceed your capital gains in that given tax year. In general, you can carry capital losses forward indefinitely, either until you use them all up or until they run out.

Carryovers of capital losses have no time limit, so you can use them to offset capital gains or as a deduction against ordinary income in subsequent tax years until they are exhausted.

Keep in mind there may be restrictions on how much of a loss you can claim in a given tax year, even though you can carry over capital losses. Beyond these limits, any excess losses may be carried over to subsequent years.

How to Realize and Claim a Capital Loss Carryover

To claim a capital loss carryover, you first need to determine the carryover amount. Figure out the entire amount of capital losses from prior tax years that you are eligible to carry forward. When your capital losses have been neutralized against capital gains from prior years, this should be the remaining amount.

To record your capital gains and losses in your current year tax return, use Schedule D (Capital Gains and Losses) on Form 1040 of your tax return. Give the essential details regarding the sales or disposal of assets such as the dates of purchase and sale, the amount of the revenues, and the assets' cost or basis.

For any spreadsheets or specific parts pertaining to capital loss carryovers, refer to the instructions included with Schedule D. These instructions explain the process of calculating the carryover amount and assist you in determining the tax deduction that can be claimed. This worksheet is discussed more in depth in the following section.

As soon as you have calculated the amount of the capital loss carryover, transfer that amount to the correct line on your tax return. This may differ based on the exact tax form you are utilizing and the IRS guidelines provided for that specific tax year. Refer to the tax form's instructions for the specific lines.

It's important to keep accurate records and documentation of your capital losses and carryovers, including any evidence that the initial losses and carryover computations were made correctly. This will be helpful if the IRS audits you or if you need to refer to the data for upcoming tax years.

Capital Loss Carryover Worksheet

To keep track of capital loss carryovers, the IRS provides a worksheet or form within the Schedule D instructions. This worksheet typically helps you calculate and document the amount of capital loss that you can carry over from one tax year to the next.

It may involve calculations based on the specific details of your capital gains and losses, such as the type of assets sold, the holding period, and any applicable limitations or adjustments.

Capital Loss Carryover: Definition, Rules, and Example (1)

A similar type of worksheet is also provided within Publication 550 (Investment Income and Expenses). Be mindful to always review the most recent year's worksheet, as changes in legislation may change the calculations that impact the amount of carryover you're permitted to take.

Example of Capital Loss Carryover

Any excess capital losses can be used to offset future gains and ordinary income. Using the previous example, if ABC Corp stock had a $20,000 loss instead of $9,000 loss, the investor would be able to carry over the difference to future tax years.

The initial $10,000 of realized capital gain would be offset, and the investor would incur no capital gains tax for the year. In addition, $3,000 can be used to reduce ordinary income during the same calendar year.

After the $10,000 capital gain offset and the $3,000 ordinary income offset, the investor would have $7,000 of capital losses to carry forward into future years. Carrying losses forward is not restricted to the following tax year.Losses can be carried forward into future years until exhausted.

How Do I Calculate a Capital Loss Carryover?

To calculate a capital loss carryover, subtract your capital gains from your capital losses in a tax year. If losses exceed gains, the excess amount is the carryover. Then, in subsequent years, reduce this balance by the amount of the carryover loss used to offset the capital gains or ordinary income for that specific year.

How Long Can I Carry Forward Capital Losses?

Capital losses can be carried forward indefinitely until fully utilized or exhausted. There is no expiration date for capital loss carryovers.

Can Capital Loss Carryovers Be Used to Offset Ordinary Income?

Yes, capital loss carryovers can be used as a deduction against ordinary income or to offset capital gains.

Can I Use Capital Loss Carryovers to Offset Gains from Different Asset Classes?

Yes, you can. Capital losses from one asset class can be used to offset capital gains from another asset class, helping to reduce your overall tax liability.

What Happens to Capital Loss Carryovers If I Skip a Year of Filing Taxes?

If you skip a year of filing taxes, your capital loss carryovers remain available for future use. They can be utilized in subsequent tax years as long as you properly report the carryover on the appropriate tax return.

The Bottom Line

A capital loss carryover allows for the offset of capital gains or deduction against ordinary income in future tax years with unused capital losses from previous years.

When an individual or business incurs capital losses that exceed their capital gains in a given tax year, the excess losses can be carried forward to future years. This allows taxpayers to utilize the losses in subsequent years, reducing their taxable income and potentially lowering their overall tax liability.

Correction—Sept. 20, 2023: A previous version of this article mistakenly stated that capital loss carryovers could only be used to offset capital gains. It has been edited to reflect that capital loss carryovers may also be used as a deduction against ordinary income.

Correction—Nov. 5, 2023: This text has been corrected to reflect that a decedent’s capital loss is deductible only on their final income tax return and can’t be carried over to their heirs.

Capital Loss Carryover: Definition, Rules, and Example (2024)


What is a capital loss carryover example? ›

For example, if your net capital loss in 2023 was $7,000, you're filing as single, and you don't have capital gains to offset the losses, you could: Deduct $3,000 of the loss in tax year 2023. Deduct $3,000 in tax year 2024. Deduct the remaining $1,000 in tax year 2025.

What are the rules for carrying forward capital losses? ›

Capital losses that exceed capital gains in a year may be used to offset capital gains or as a deduction against ordinary income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted.

Can I use less than $3000 capital loss carryover? ›

The IRS caps your claim of excess loss at the lesser of $3,000 or your total net loss ($1,500 if you are married and filing separately). Capital loss carryover comes in when your total exceeds that $3,000, letting you pass it on to future years' taxes.

What is an example of a tax loss carry forward? ›

For a simple example of the NOL carryforward rules post-TCJA, suppose a company lost $5 million in 2022 and earned $6 million in 2023. Its carryforward limit for 2023 would be 80% of $6 million, or $4.8 million.

How does carryover loss work? ›

When a loss is greater than the amount allowed by the tax deduction, it can be carried to the following years. This creates a future tax relief, which essentially increased the income of a future year. Different types of loss can be carried over for different number of years.

How do you record capital loss carryover? ›

Limit on the deduction and carryover of losses

Claim the loss on line 7 of your Form 1040 or Form 1040-SR. If your net capital loss is more than this limit, you can carry the loss forward to later years.

What is the capital loss rule? ›

When a security or investment is sold for less than its original purchase price, then the dollar amount difference is considered a capital loss. For tax purposes, capital losses are only reported on items that are intended to increase in value.

Which capital loss carryover is used first? ›

A long-term capital loss carryover first reduces long-term capital gain in the carryover year, then net short-term capital gain, and finally up to $3,000 of ordinary income.

Which losses Cannot be carried forward? ›

Speculative business loss, specified business loss, loss from horse racing or capital losses cannot be set off against any other head of income. financial years. Carry forward and set-off of losses is possible for eight subsequent financial years.

Why can I only claim 3000 capital losses? ›

You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—up to $3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall ...

How much capital loss can you claim per year? ›

The IRS limits your net loss to $3,000 (for individuals and married filing jointly) or $1,500 (for married filing separately). Any unused capital losses are rolled over to future years.

How to calculate capital loss? ›

Capital Loss = Purchase Price – Sale Price

If the sale price is higher than the purchase price, it is referred to as a capital gain.

Do you have to use capital losses brought forward? ›

Yes, You can carry forward any unused losses for CGT. Only losses that occur in the same year must be utilised first before using any of the annual exempt amount. If you then don't use all of the losses, these can then be carried into later years.

Can capital losses offset ordinary income? ›

Capital losses can indeed offset ordinary income, providing a potential tax advantage for investors. The Internal Revenue Service (IRS) allows investors to use capital losses to offset up to $3,000 in ordinary income per year.

Does TurboTax keep track of capital loss carryover? ›

We provide a Capital Loss Carryover Worksheet in the 2023 Schedule D instructions to calculate the amount of the carryover, and whether it is short-term or long-term. You can only deduct a maximum of $3,000 of capital losses on your Form 1040 each year.

What qualifies as a capital loss? ›

A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price.

How much capital loss can I claim per year? ›

Deducting Capital Losses

If you don't have capital gains to offset the capital loss, you can use a capital loss as an offset to ordinary income, up to $3,000 per year. If you have more than $3,000, it will be carried forward to future tax years." Here are the steps to take when it comes to tax filing season.

How much capital loss can you deduct per year? ›

The IRS will let you deduct up to $3,000 of capital losses (or up to $1,500 if you and your spouse are filing separate tax returns). If you have any leftover losses, you can carry the amount forward and claim it on a future tax return.

Which losses can be carried forward? ›

Rules to carry forward losses:
SectionLosses can be carried forwardTime limitation for carry forward
73Loss from speculative business4 Years
73ALoss from specified businessNo time limit
74Short term capital loss8 Years
74Long term capital loss8 Years
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