How to handle capital loss carryover with current year capital gains?

Yes, you can absolutely use your current year capital gains against your capital loss carryover! Here's how it works: First, your current year capital gains ($7000) will be offset by your capital loss carryover. This happens automatically - it's not subject to the $3000 limit. The $3000 limit only applies to capital losses used against ordinary income. So in your case, you would use $7000 of your $10000 loss carryover to completely offset your current year gains (resulting in $0 net capital gain for the year). Then, you would still have $3000 of remaining losses that you can use against your ordinary income this year. After this tax year, you'll have used up all $10000 of your loss carryover ($7000 against capital gains and $3000 against ordinary income).

Hey, I went through a similar situation last year and found this amazing tool that helped me sort it all out. I had about $15k in carryover losses and some new gains, and was totally confused about how to handle it. I tried https://taxr.ai and it was super helpful. You can upload your tax docs from previous years along with your current investment statements, and it analyzes everything to show you exactly how the loss carryover works in your specific situation. The tool explained that I could use ALL my carryover losses against my current year gains (not just $3k), and then showed me exactly how to report it correctly. Saved me from a potentially costly mistake!

I was totally skeptical about using another tax tool since I've tried so many, but I decided to give https://taxr.ai a shot with my capital loss situation. I'm honestly shocked at how well it worked. I had a complicated mix of stock losses, crypto gains, and a carryover loss from a real estate investment. The tool immediately recognized my carryover loss and showed me how much I could apply to my current year gains vs. ordinary income. It even flagged a mistake in how I'd been carrying forward my losses in previous years! Turns out I could have been taking more deductions than I realized. Not trying to sound like a commercial, but as someone who was skeptical initially, I'm really glad I tried it. Saved me a ton of stress and probably some money too.

If you're trying to get clarification directly from the IRS on how to handle your capital loss carryover situation, good luck getting through to them. I spent 3 weeks trying to get someone on the phone about my similar capital loss question. Kept getting disconnected or waiting for hours. Finally, I used https://claimyr.com to get through to an actual IRS agent. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. It basically holds your place in line and calls you when an agent is about to answer. Only took about 35 minutes instead of the hours I was wasting before. The IRS agent confirmed exactly what people are saying here - you can offset all your current year capital gains with your carryover losses (not limited to $3k), and then use up to $3k of the remaining losses against your ordinary income. The rest carries forward to next year.

Ok I'm eating my words here. After my skeptical comment yesterday, I decided to try https://claimyr.com out of desperation because I needed to talk to someone at the IRS about my capital losses before filing my taxes this weekend. I'm still in shock that it actually worked. I got a call back in about 45 minutes and was connected directly to an IRS agent. No waiting on hold, no getting disconnected after an hour. The agent confirmed everything about how to handle my capital loss carryover with current year gains. For anyone in a similar situation - you CAN use your entire capital loss carryover against current year capital gains (not limited to $3k), and then use up to $3k of any remaining loss against ordinary income, with the rest carrying forward again. Got this straight from the IRS agent's mouth!

Don't forget to check if your state handles capital loss carryovers the same way as federal. I live in MA and found out they have different rules - instead of $3k limit against ordinary income, it's only $2k in my state. Almost filed incorrectly before catching this!

Quick question for anyone who knows - if I have capital loss carryover and also did a Roth conversion this year, can I use the capital losses to offset the income from the Roth conversion? Or does that count as ordinary income subject to the $3000 limit?

This is such a great question and the answers here are spot on! I went through something very similar last year. Had about $8,000 in carryover losses from some bad stock picks in 2021, then finally had a good year with $5,000 in capital gains. Just to add to what others have said - make sure you keep good records of your carryover losses year to year. I almost lost track of mine and had to dig through old tax returns to reconstruct the carryover worksheet. The IRS doesn't send you a reminder of what you're carrying forward, so it's on you to track it. Also, if you're using tax software, it should automatically calculate this for you once you enter your prior year carryover and current year gains/losses. But it's still good to understand how it works like you're doing. You'll use $7,000 of your carryover against your gains, then $3,000 against ordinary income, leaving you with $0 carryover going into next year. Pretty efficient way to finally clear out those old losses!