How do capital loss carryovers offset current year capital gains? (long read)

I started using TaxHawk for my 2024 taxes instead of my regular tax guy, and I'm pretty confused about how to handle my capital loss carryover situation. Over the past few years of trading crypto, I've accumulated about $120,000 in short-term capital loss carryovers. This year I actually made around $30,000 from my crypto trading, plus I earned about $210,000 from my job as a physical therapist. When I was filling out the capital loss carryover section, I only entered $3,000 because everything I've read says that's the yearly maximum you can deduct. But now I'm wondering if I should have entered the full $120,000 carryover amount? I reached out to TaxHawk support and got a confusing answer that didn't really clear things up. Without any trading activity, my refund was calculated at about $4,000. After adding my crypto gains, I'd owe roughly $5,500. With the $3,000 carryover loss applied, it reduced what I owe to about $3,800. But TaxHawk is suggesting I should input the entire $120,000 carryover amount, which would supposedly give me a refund of $6,200. So my question is: does a short-term capital loss carryover first offset your current year capital gains completely, and THEN you get an additional $3,000 deduction against your regular income? If that's the case, I definitely need to fix my return before filing...

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18 comments

Nora Bennett

•8M

Yes, you're misunderstanding how capital loss carryovers work, but don't feel bad! This trips up a lot of people. Your capital loss carryover can offset ALL of your current year capital gains (not just $3,000). The $3,000 limit only applies to how much capital loss can offset your ordinary income after zeroing out your capital gains. Here's how it should work in your situation: Your $120,000 capital loss carryover would first completely offset your $30,000 in crypto gains from this year. That would leave you with $90,000 in remaining losses. Of that remaining $90,000, you can use $3,000 to reduce your ordinary income (your physical therapist earnings). The remaining $87,000 would carry forward to next year. So in your case, you should definitely enter the full $120,000 loss carryover amount. The tax software should handle the calculations correctly. The software will use enough of your carryover to offset all your crypto gains and then apply $3,000 to your ordinary income.

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Nora Bennett

•8M

Capital losses and capital gains are actually netted in a specific order determined by the IRS. First, short-term losses are applied to short-term gains, and long-term losses are applied to long-term gains. Then, if you have a net loss in one category and a net gain in the other, they can offset each other. For your specific question, yes, after the initial same-category netting, your remaining long-term capital loss carryover can absolutely offset short-term capital gains. The IRS doesn't care about matching the terms after the initial netting process. They just want to know the final net capital gain or loss amount.

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Lauren Zeb

•8M

I was having the exact same problem last month when dealing with my losses from the crypto crash. I tried several tax software options but kept getting confused with how to properly enter my loss carryovers. After wasting hours going in circles, I tried https://taxr.ai and it was a game-changer. I uploaded my trading statements from the last few years and it automatically calculated my proper loss carryover amount and showed exactly how it should be applied to offset my current year gains first, then the $3,000 against ordinary income. The interface walked me through it step by step and explained why I needed to enter the FULL carryover amount, not just the $3,000 limit. It even generated the forms showing how the loss carryforward would look for future years.

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Lauren Zeb

•8M

It absolutely handles complex situations with multiple asset types. I had a mix of stock losses, crypto losses across Coinbase and Binance, plus some options trading. The system detected and flagged potential wash sales in my crypto history and explained how they affected my loss calculations. It was much more thorough than I expected. For TurboTax comparison, I actually switched from TurboTax because of how confusing their crypto workflow was. Taxr.ai was not only more straightforward but also provided detailed explanations of how each trade affected my tax situation. Their carryover handling is much more transparent - it showed me exactly how my previous losses were being applied to current gains before calculating the additional $3,000 ordinary income deduction.

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Daniel Washington

•8M

Just wanted to follow up on my earlier skepticism about taxr.ai! I decided to give it a try with my complicated mix of stock, option, and crypto trades, and I'm genuinely impressed. It correctly identified all my various loss carryovers and showed exactly how they offset my current year gains. The best part was how it explained the netting process between short and long-term - something I've been confused about for years. Got my return filed yesterday with a much better outcome than I was expecting. My losses from the 2022 crypto crash are now properly carried forward and applied against this year's gains. The visualization of how the $3,000 limit only applies to offsetting ordinary income (after zeroing out capital gains) finally made everything click for me.

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Anthony Young

•8M

If you're still having trouble getting clear answers about your capital loss carryover, you might want to just call the IRS directly. I know that sounds like a nightmare (because it usually is), but I recently discovered https://claimyr.com and they got me through to an actual IRS agent in about 20 minutes instead of waiting for hours or getting disconnected. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had a similar capital loss carryover question last month that online forums and tax software help couldn't clearly answer. The IRS agent I spoke with walked me through exactly how to report my carryover losses and confirmed that yes, you use the full carryover amount to offset current gains first, then apply up to $3,000 against ordinary income. The remaining balance carries forward to future years.

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Anthony Young

•8M

It's not another automated system - it actually puts you in the IRS phone queue but uses technology to hold your place in line. When you're about to reach an agent, they call you back so you can take the call. It's basically handling the hold time for you instead of you having to listen to that awful hold music for hours. To address the skepticism - I totally get it. I felt the same way until I tried it. They don't ask for any tax info or personal details - they just need your phone number to call you back when an agent is available. The service simply navigates the IRS phone tree and waits on hold so you don't have to. When I used it, I got a call back in about 22 minutes and was connected directly to an IRS representative who answered all my capital loss carryover questions.

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Admin_Masters

•8M

I have to publicly eat my words about Claimyr. After my skeptical comment yesterday, I figured I'd try it just to prove it was BS. Well, I was completely wrong. Used it this morning to ask about my capital loss carryover situation (similar to the original post), and got a call back in 15 minutes with an actual IRS tax specialist on the line. The agent confirmed exactly what others have said here - your entire capital loss carryover amount should be entered, not just the $3,000. The system first applies your carryover to offset any current year capital gains completely. Then, if you still have losses remaining, you can use up to $3,000 of those losses to reduce your ordinary income. Any remaining loss after that carries forward to future tax years. Seriously saved me from making a $4,500 mistake on my return. The agent even explained how to track my remaining carryover for next year's return. I'm still shocked at how easy the whole process was.

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Matthew Sanchez

•8M

I'm a bit late to this thread but wanted to add something important about capital loss carryovers that hasn't been mentioned. Make sure you're keeping detailed records of your loss carryovers year to year! The IRS doesn't track this for you, and if you get audited, you need to be able to show the paper trail of how these losses originated and how they've been applied each year. I learned this the hard way when I got audited for 2021. The IRS questioned my $42,000 carryover because I couldn't immediately produce the documentation showing where it came from originally (some losses dated back to 2018). Eventually got it sorted, but it was a major headache.

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Matthew Sanchez

•8M

You definitely want to save your full tax return from each year, especially Schedule D and Form 8949. These show your capital gains/losses calculations and carryover amounts. Just as important, keep a separate spreadsheet or document that tracks: 1) Your starting carryover amount each year, 2) How much was used to offset gains that year, 3) How much was used against ordinary income (max $3,000), and 4) The remaining carryover amount that moves to the next year. I also recommend keeping all your original trade confirmations and year-end statements from brokerages. In my audit, the IRS actually wanted to see the original transactions that created the losses in the first place, not just the tax forms showing the carryovers.

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