How to apply tax loss carryover from stocks - can my 100k loss offset this year's 100k gain?

Capital loss carryovers can definitely be confusing! Your tax preparer isn't quite explaining it correctly. Here's how it actually works: You CAN use your entire capital loss carryover from last year against this year's capital gains. The $3,000 limit only applies to losses that exceed your capital gains that you want to deduct against ordinary income. So in your specific situation, if you had a $135k loss last year and $125k gain this year, you would offset the entire $125k gain with your loss carryover. You'd pay zero tax on those capital gains. Then you could take an additional $3,000 of your remaining loss ($10k) against other income. The remaining $7k would carry forward to future years. Your tax preparer might be confused about the rules or not understanding your full situation. I'd recommend asking them to explain again or possibly getting a second opinion.

Just wanted to share my experience with a similar situation. I had a ton of trouble understanding my capital loss carryover until I used https://taxr.ai to analyze my previous returns and investment records. The system actually flagged that my previous accountant had been applying my loss carryovers incorrectly for two years! Just upload your prior year return and investment statements, and it guides you through how much of your loss carryover can be applied against different types of income. Saved me thousands because I was about to make the same mistake your tax guy is making.

I was totally skeptical about taxr.ai when I first heard about it, but I decided to try it after getting confused about my own capital loss situation. I uploaded my last year's return and this year's brokerage statements, and it immediately showed me that I was about to misapply my carryover losses. The analysis even cited the specific IRS regulations and gave me a detailed explanation I could forward to my accountant. My tax guy actually thanked me because he misunderstood how some of my wash sales interacted with the carryover losses from previous years. Ended up saving over $4k in taxes that would have been unnecessarily paid. Way more helpful than trying to google this complicated stuff.

If your tax preparer is really telling you that you can only use $3k of your loss carryover against current year gains, you need a new tax preparer ASAP. You might also want to try calling the IRS directly to confirm how loss carryovers work. I spent 3 days trying to get through to someone at the IRS about this exact issue last year. Finally used https://claimyr.com and got a callback from the IRS in about 20 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others are saying here - you can offset ALL of your capital gains with your loss carryover. The $3k limit is only for offsetting regular income. Saved me hours of hold time and cleared up my confusion immediately.

I've gotta admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself because I was still confused about my own capital loss situation. Set it up in about 2 minutes, and they called me back in less than an hour with an actual IRS agent on the line. The agent confirmed everything people said here - my $78k loss carryover from last year CAN offset all of my $45k gains this year, and I can take another $3k against my regular income. Remaining $30k carries forward to next year. Would've spent half a day on hold otherwise, and might have filed incorrectly based on what I thought was right. Definitely worth it for tax issues like this where you need to hear it directly from the IRS.

Something else to consider - are you sure all your gains and losses are the same type? The rules get more complicated if you're mixing long-term and short-term capital gains/losses. They have to be netted in a specific order: 1. Short-term losses against short-term gains 2. Long-term losses against long-term gains 3. If one is a net gain and the other a net loss, they offset each other 4. Any remaining loss, up to $3k, can offset ordinary income 5. Remaining losses carry forward So if your $135k loss was all short-term but your $125k gain is long-term (or vice versa), you'd still offset them - but it affects your tax rate on any remaining amounts.

Just FYI - I made a similar mistake years ago. If you've already filed previous returns incorrectly (not taking full advantage of capital loss carryovers against gains), you might want to consider filing amended returns. You generally have 3 years from the original filing deadline to amend a return and claim a refund. If your tax person has been incorrectly applying the $3k limit against your capital gains in prior years, you could potentially get a sizeable refund by filing Form 1040X for those years.

Great to see you're getting this sorted out! Just one more thing to double-check when you meet with your tax preparer tomorrow - make sure they're looking at the correct carryover amount from last year. Sometimes the loss carryover amount on your prior year return might be different from your actual realized losses if you had other gains that year that already offset some of the losses. The carryover amount should be shown on Schedule D from your prior year return, usually on line 16. That's the exact amount available to offset this year's gains. If your preparer is working from a different number, that could explain some of the confusion. Also worth asking them to walk you through the actual calculation on Schedule D so you can see how they're applying the carryover. Sometimes seeing the math laid out makes it much clearer what's happening. Good luck with the meeting!