Capital Loss Carryover

Discussion in 'Professional Trading' started by Pabst, Mar 19, 2002.

  1. Pabst


    Can't get a straight answer to this one. Let's say you were an individual trader with capital losses that you are carrying over. The obvious facts are;

    1. You can use only 3k of those losses per year against non-trading income.

    2. You can exhaust the sum of your carryover against future winnings as an individual.

    Here is where there is dispute. Are profits that a trader makes vis a vis LLC status trading gains or "ordinary earned income"? In other words can an individual use his accumulated losses one for one against his newly formed LLC, or is he limited to the 3k. Would a S Corp be treated the same as an LLC.

    Thanks in advance
  2. SamW


    The real issue is whether a Mark to Market election has been filed. If so, all income or loss is ordinary and the capital losses carried forward cannot be used to offset future gains (except, of course, to the extent of the $3,000 per year).
  3. It is important to keep in mind that although an LLC and S Corp are both similar to regular Corporations both of them are pass-through entities. In other words losses and profits should retain the same character on the individual's tax return as when the LLC or S Corp earned them. To say it a different way, a captial gain of an LLC or S Corp would pass through as a capital gain to the individual. Of course if the individual is usinig mark to market accounting these gains would need to be declared as ordinary.

    That's how I read it anyway - but this is by no means the authoritative answer. Consult your accountant etc.
  4. Pabst


    SamW & TriPack:

    Are you saying that since I HAVE NOT elected Mark to Market(luckily)
    that new LLC gains can be written off against losses at greater than 3k.
  5. Yes, in your situation you should be able to offset capital gains from an LLC or S Corp directly against capital losses made by you as an individual in a previous (or current) tax year. I hope that is clear enough.
  6. Pabst