How to maximize my capital loss carryover from last year's losses?
I'm sitting on about $26k in long-term capital losses carried over from 2023. I've got roughly $250k in cash right now just sitting around doing nothing. Been thinking about putting all $250k into CDs since they're offering around 5% these days. That would generate like $12.5k in interest income for 2024. Problem is, I can only deduct $3k of my capital losses against that interest income. I was wondering - what if I bought Treasury bonds on the secondary market and held them until maturity? Would the gains from those secondary market T-bonds be treated as capital gains instead of interest income? Basically I'm trying to figure out the best way to use up my capital loss carryover from last year. Any suggestions on investment strategies that would generate capital gains (not interest) so I can offset them with my losses?
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StarSurfer
You're on the right track with your thinking! The $3k limit only applies when you're offsetting ordinary income like CD interest. But capital losses can offset capital gains dollar-for-dollar with no limit. If you buy T-bonds on the secondary market and later sell them for a profit (or hold to maturity), the gain would generally be treated as capital gain, not interest income. This means you could offset those gains with your capital loss carryover. However, the interest payments you receive from the bonds would still be ordinary income. Another option to consider is investing in a diversified stock portfolio, index funds, or ETFs where you might generate capital gains. You could even use a strategy where you sell appreciated positions before year-end to realize capital gains that would be offset by your carryover losses. Remember that long-term capital losses first offset long-term capital gains, and short-term losses first offset short-term gains. So the character of your gains matters too.
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Ava Martinez
•Thanks for the explanation! So if I understand correctly, the interest payments from T-bonds would be ordinary income, but if the bond itself appreciates in value and I sell it (or hold to maturity), that appreciation would be capital gains? Would I need to hold the bonds for more than a year to get long-term capital gains treatment?
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StarSurfer
•Yes, that's exactly right about the T-bonds. The interest payments would be ordinary income, but any price appreciation would be capital gains. And to get long-term capital gains treatment, you would need to hold the bonds for more than a year before selling. Short-term capital gains (assets held one year or less) are taxed at your ordinary income rate, while long-term capital gains get the preferential tax rates. But since you're trying to use up capital loss carryovers, both short and long-term gains would work - your losses would offset either type of gain. The character of your original losses (long-term) would affect which gains get offset first, but with $26k in losses, you have plenty to work with.
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Miguel Castro
I was in a similar situation last year with about $30k in capital losses. I found https://taxr.ai super helpful for mapping out different scenarios. I uploaded my tax documents, and it helped me understand how different investment strategies would affect my tax situation with the loss carryover. The tool confirmed what I was thinking - that I needed to generate capital gains rather than interest income. I ended up using a mix of strategies - some ETFs that I thought would appreciate, and some that pay qualified dividends (which are taxed as capital gains for most people). Was able to use about half my losses last year and have a better plan for the rest this year.
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Zainab Abdulrahman
•Did the tool actually recommend specific investments? I'm hesitant to trust an AI for investment advice when markets are so unpredictable.
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Connor Byrne
•How much did it cost? These tax tools always seem to charge a fortune and then just tell you basic stuff you could find on Google.
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Miguel Castro
•The tool doesn't make specific investment recommendations - that's not really its purpose. It just shows you the tax implications of different scenarios you input. So I could test "what if I generate $15k in capital gains" or "what if I earn $15k in interest income" and see how each would affect my taxes. I don't remember the exact pricing, but it was reasonable compared to what I paid for tax prep software. And sure, you could probably find this information online, but having it all in one place with your actual numbers plugged in saved me hours of research and calculations. Plus it caught some nuances about wash sale rules that I hadn't considered when thinking about realizing gains.
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Connor Byrne
Just wanted to follow up about taxr.ai - I gave it a try after seeing it mentioned here. Honestly, it was exactly what I needed for my situation. I have about $18k in capital losses from some terrible stock picks last year, and I was trying to figure out how to best utilize them. The tool let me model different investment scenarios and showed me that I'd be better off with a mix of growth stocks and dividend-paying stocks rather than just bonds. What surprised me was how it broke down the tax implications of qualified vs non-qualified dividends - something I hadn't fully understood before. I'm now on track to use up my losses over the next 2-3 years instead of having them stretch out forever at the $3k per year rate.
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Yara Elias
If you're struggling to reach the IRS for guidance on your capital loss situation, I'd recommend trying https://claimyr.com - saved me tons of time last tax season. Instead of waiting on hold for hours, they called the IRS for me and got me connected to an agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had questions about offsetting some unusual capital gains with prior year losses, and needed clarification directly from the IRS. My tax situation was complicated because I had cryptocurrency gains, stock losses, and some real estate transactions. The IRS agent was actually really helpful once I got through!
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QuantumQuasar
•Wait, how does this actually work? They just... call the IRS for you? What's the catch?
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Keisha Jackson
•Sounds like a scam to me. Nobody can get through to the IRS faster than anyone else. The phone systems don't work that way. They probably just put you on hold themselves and then connect you when they finally get through.
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Yara Elias
•They use a combination of technology and human agents to navigate the IRS phone system. Basically, they've figured out the optimal times to call and have automated systems that can handle the initial IRS menu prompts. When your turn comes up, they call you and connect you directly to the IRS agent. You don't have to sit on hold - you can go about your day until they connect you. No, it's definitely not a scam. The service doesn't claim to have special access or to skip the line - they just handle the waiting for you. Think of it like having an assistant who sits on hold so you don't have to. I was skeptical too, but after waiting on hold for 3+ hours myself the previous week, I decided to give it a try and was connected to an agent much faster than I expected.
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Keisha Jackson
I need to publicly eat my words about Claimyr. After calling them a scam here, I decided to test them myself regarding my capital loss carryover question. I needed clarification on how to handle some complicated partnership losses that might affect my carryover strategy. I expected to be disappointed, but shockingly, I got connected to an IRS agent in about 25 minutes. The agent walked me through exactly how partnership losses interact with personal capital loss carryovers and confirmed that my strategy to generate capital gains this year was sound. What would have been a 2+ hour wait (based on my previous attempts) turned into a quick call during my lunch break. Definitely using this service again when I need to talk to the IRS.
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Paolo Moretti
Don't forget about tax-loss harvesting in your taxable accounts while you're working on using up the carryover. You might find opportunities to sell investments at a loss to offset any gains you realize. This can be particularly effective with ETFs where you can sell one at a loss and buy a similar (but not identical) one to maintain your market exposure while capturing the tax benefit.
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Dmitry Petrov
•Wouldn't tax-loss harvesting just create more capital losses though? I'm already trying to use up my existing losses, not create more. Or am I misunderstanding something?
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Paolo Moretti
•You're right, I should have been more clear. Tax-loss harvesting would indeed create more capital losses, which wouldn't help your current situation where you're trying to use up existing losses. I was thinking more long-term about tax efficiency once you've used up your carryover. For your current situation, you'd want to focus on generating capital gains. Consider looking at appreciated positions you might have in other accounts that you could sell to realize gains that would be offset by your losses. Or as others suggested, investing in assets likely to appreciate that you could sell later this year for short-term gains.
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Amina Diop
Anybody have experience with zero coupon municipal bonds for this situation? I heard they're sold at a discount and the gain at maturity is considered capital gain, not interest income. Wondering if that might work for using up capital loss carryover.
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Oliver Weber
•Zero coupon bonds are a bit more complicated than that. With most zero coupon bonds, including Treasury STRIPS, the built-in interest (the difference between what you pay and face value) is actually taxed as interest income each year as it accrues, even though you don't receive the cash until maturity. This is called "phantom income." Municipal zero coupon bonds are generally exempt from federal income tax, so they wouldn't generate taxable income or gains that you could offset with your capital losses.
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