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What form do you use to track your capital loss carryover year to year? I've been using a spreadsheet but I'm wondering if there's an official IRS form I should be using instead. This is my third year carrying over losses and I want to make sure I have proper documentation in case of an audit.
Schedule D has a worksheet in the instructions called the "Capital Loss Carryover Worksheet" that you should fill out each year. It's not submitted with your return, but it's the official way to calculate your carryover amount. Keep it with your tax records! There's one for 28% rate transactions and another for regular transactions. You can find it in the Schedule D instructions PDF on the IRS website.
Thanks for the tip! I didn't realize there was an official worksheet in the Schedule D instructions. I'll definitely download that and start using it instead of my homemade spreadsheet. Makes sense they'd have something for this since so many people carry losses forward, especially after market downturns.
Is anyone else getting confused by tax software showing different numbers for this? When I enter my carryover loss in TurboTax, the summary screen shows one number, but when I look at the actual Schedule D preview, the amount seems different. I'm not sure which one to trust!
I've noticed this too! The difference is usually because the summary screen might be showing your net capital loss after offsets, while Schedule D shows the detailed breakdown. Check Form 1040 line 7 to see the actual amount of loss being applied against your income this year (max $3k). The software is probably right, but it's showing you different stages of the calculation.
One thing nobody mentioned - make sure you've contacted your employer in writing requesting the W2 (email or certified letter) before you file Form 4852. The IRS will ask if you've done this, and you need to document your attempts to get the original W2. Also, have you checked if they submitted your W2 electronically? You might be able to access it through the IRS website by creating an account at irs.gov and checking your wage and income transcript. Sometimes employers file electronically but don't mail paper copies.
That's really good advice about documenting my attempts to get the W2! I've been asking them verbally every week but haven't put anything in writing. I'll send an email today and keep a copy. I didn't know about checking the IRS website for electronically filed W2s. I'll definitely create an account and check that out. Would it show up there even if the restaurant owners are new to filing this paperwork? Maybe they submitted it correctly to the IRS but just didn't know they needed to give me a copy?
Yes, documenting your requests in writing is crucial. Save copies of your emails or get a receipt for any certified mail you send. This protects you by showing you made good-faith efforts to get your W2 properly. If they did file electronically with the IRS, it should eventually show up in your wage and income transcript, but there can be delays, especially during tax season. New business owners might indeed have filed correctly with the IRS but not realized they need to provide copies to employees. That happens more often than you'd think. The transcript approach is worth checking, but it might not show recent filings immediately - sometimes it takes weeks or even months for newly filed information to appear in your transcript.
Dont forget about state taxes too! The Form 4852 is just for federal, you might need to do something similar for your state return. Each state has different requirements for missing W2 situations.
Good point! When I had this problem in Michigan, I just attached a copy of the federal 4852 to my state return with an explanation letter. But my friend in California had to fill out a separate state form.
One thing nobody's mentioned yet - make sure you're tracking your net investment income correctly too, not just the margin interest. The deduction is limited to your net investment income for the year (which includes interest, dividends, capital gains, etc.) Also, margin interest is reported on Schedule A under "Investment Interest" - make sure you're putting it in the right place if this is your first year itemizing. I messed this up my first time and had to file an amended return!
Thanks for mentioning this! I've been tracking my dividends and capital gains, but I wasn't clear about what specifically counts as "net investment income" for this purpose. Are there any other categories I should be including? And does the order of operations matter - like do I subtract other investment expenses before calculating the limit?
Net investment income generally includes interest, dividends, annuities, royalties, short-term capital gains, and long-term capital gains. It doesn't include tax-exempt interest (like from municipal bonds), so be careful not to include that. The order does matter. You'd subtract investment expenses other than interest (like management fees) first to arrive at your net investment income. Then that becomes your limit for deducting investment interest. Publication 550 has worksheets that walk you through the calculation step by step - I'd recommend following those closely. The form that tracks the carryover amount is Form 4952, which you'll need to file with your return when itemizing.
Wait, I'm confused about something. If investment interest is deductible against investment income, where does the itemized vs standard deduction choice come into play? Isn't it a separate calculation?
The itemized vs. standard deduction choice affects whether you can claim the investment interest deduction at all. Investment interest gets reported on Schedule A (Itemized Deductions). If you take the standard deduction instead of itemizing, you don't file Schedule A, so you don't get to claim any investment interest deduction. So the process works like this: 1. Calculate your potential investment interest deduction (limited to net investment income) 2. Add this to your other potential itemized deductions 3. Compare total itemized deductions to your standard deduction 4. Choose whichever is higher This is why the OP can't carry forward interest from a standard deduction year - they never claimed it on Schedule A in the first place.
Oh that makes sense! I was getting confused between the investment income limitation and the itemizing requirement. Thanks for clarifying!
Have you looked into treating this as a loan to the company rather than a reimbursement? If you properly document it as a loan you made to your business (even after the fact), then the repayment wouldn't be taxable income to you. I did something similar when I had to cover payroll during COVID before our PPP loan came through.
That's an interesting angle I hadn't considered. How exactly would I document it as a loan at this point? We've already processed the reimbursement as a regular transfer from the business account to my personal account a few months ago.
You'd need to create a promissory note between yourself and the company, with reasonable interest terms (look up the applicable federal rate for the time period), and have your board of directors (even if that's just you) approve it retroactively. Then reclassify the "reimbursement" payment as loan repayment in your books. Be aware that this approach works best if the amount was clearly definable and specific, like covering exact payroll amounts. If you've been mixing personal and business expenses regularly without clear documentation, this becomes much harder to justify. Also, don't forget to include any interest required on the loan when doing your taxes - even if you choose to forgive it, there can be tax implications.
Did your CPA mention anything about the possibility of treating this as an investment in your company rather than a nonaccountable plan reimbursement? Adding to your basis might be another approach depending on your business structure (S-Corp, LLC, etc).
This is a really good point. What type of business entity do you have, OP? The tax treatment can vary significantly based on whether you're running an S-corp, C-corp, sole prop, etc.
Omar Hassan
Something important to consider with syndications and cost segregation: when you eventually sell, you'll face depreciation recapture at a 25% tax rate (for real property) on all that accelerated depreciation you took. This catches many new investors by surprise. If your syndication sponsors intend to hold for 7-10 years like many do, you might be better off focusing on building more passive income sources now, so you can actually use those paper losses each year instead of just carrying them forward. Also worth noting that the passive activity rules have a special $25,000 allowance for active participation in rental real estate, but that phases out between $100k-$150k MAGI and typically doesn't apply to syndications since you're not actively managing the property.
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Chloe Taylor
ā¢Is there any strategy to minimize that depreciation recapture hit? I've got two syndication deals and just realized I'm building up a big tax bill for the future when they sell.
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Omar Hassan
ā¢The most effective strategy is a 1031 exchange, which allows you to defer both capital gains and depreciation recapture taxes by rolling your proceeds into another "like-kind" property. However, this is complicated with syndications since you don't control the decision to sell or exchange. Some syndication sponsors offer 1031 options where you can roll your portion into their next deal, but not all do. Another approach is continuous investing - as one syndication sells (triggering tax), you're simultaneously generating new paper losses from new investments to help offset the hit. This requires careful timing and planning. Some investors also increase their passive income streams before a syndication sells, so they can utilize any remaining suspended passive losses to offset the recapture. This could be through additional real estate investments or even passive business activities.
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ShadowHunter
Anyone have experience with using multiple cost segregation studies across different syndication properties? I'm wondering if getting involved in several deals would compound the tax benefits or if there are limitations I should know about.
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Diego Ramirez
ā¢I'm invested in 5 different syndication deals that all did cost seg studies. The paper losses absolutely compound and create a bigger total passive loss pool. There's no limit to how many properties you can take accelerated depreciation on, but remember that your ability to use those losses still depends on having passive income to offset.
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