So about me: Got into trading last year, was unemployed, don't have trader tax status So my question is regarding deducting a large capital loss last year against a large capital gain this year and if there is a 3k cap on that if i don't have trader tax status? for example, if last year (2020), let's say i had 20k in capital loss from stocks. Now this year (2021), let's say i have 100k in capital gains. CAn i deduct the full 20k capital loss from last year to this year's 100k capital loss, making my taxable capital gain income essentially 80k? OR since i just a regular trader with no trader tax status with the IRS, i can only deduct 3k of that capital loss this each and the remainder carries over each year, making this year's taxable capital gain income 97k? I'm reading online and there is so many conflicting info. Some say that it's 3k max each year, and you will only be able to deduct 3k until you deduct the full capital loss through the years, every year. Others say that only up to 3k of the 20k loss is deductible if it is against "Regular income", but if you have a huge capital gain this year (like 100k in this example), you can deduct the full 20k for this year. I know, before you guys say go to speak to an expert cpa and etc...yes yes i know, i will.. But i am still also wanting to hear advice or answer of anyone who's been in this situation before. Thank you. I will read up and gather more info in the meanwhile, but i would appreciate any extra insight that anyone here can provide on the situation. Thank you!
no need to speak to a CPA. For federal purposes your losses carry forward and offset gains until they are extinguished. your income in 2021 will be 80k. for state purposes, it varies from state to state. there are some nuances to short term losses vs long term gains, but your tax software will resolve that. this is a pretty vanilla issue.
Perhaps it will help you to understand the concept if you think of "offsetting" gains, losses, and carry forwards rather than "taking a deduction" for them. "... if last year (2020), let's say i had 20k in capital loss from stocks. Now this year (2021), let's say i have 100k in capital gains. CAn i deduct the full 20k capital loss from last year to this year's 100k capital loss, making my taxable capital gain income essentially 80k?..." Yes. Your 20k loss carry forward from prior year "offsets" 20k of your 100k gain this year leaving 80k net taxable gain for this year. Had your gains this year not been enough to fully offset your "loss carry forward" (from prior year/years), you would then be allowed to "deduct" 3k of your remaining loss carry forward against your ordinary income this year. (To be strictly accurate... If you had 20k capital gain loss last year, you would have taken the 3k deduction... leaving you with 17k "loss carry forward". Then with 100k capital gain this year, your 17k loss carry forward would off 17k of your 100k gain this year... leaving you with 83k taxable capital gain this year.)
thank you so much for the insight guys!!! i will contact the some CPA around my area to see what they say too. it's hard to find a good accountant, let alone one with trading tax expertise. I honestly think asking people on this forum is better because you guys actually have experience and been through this. I know you're not tax experts, but your experience is probably even better. Thanks guys. IF anyone wants to add additional insight or advice, please feel free to do so. I will be so thankful and will read further while i research and try to understand more about these stuff
You might need a CPA for your taxes but definitely not for this reason. Others have given you the answer as this is a very basic issue that any tax software can handle.
And I learned that if you elect trader status in Massachusetts you will declare your trading income as ordinary income and there’s no carry forward for that but there is for capital gains.