Just a quick question on taxes and offsetting losses vs. gains. Example: Let's say I have 100,000 in K-1 income from a prop firm and have 25,000 in carryover losses from a retail trading account. Question: Can I offset the 25,000 in losses against the 100,000 in K-1 income? So I ultimately show 75,000 in income instead of 100K? Thanks, trader29
I believe you can only use up to $3000 of past losses per year. If the "carry over loss" from the retail account was in 2011, you might get the benefit of more or all.
You will note that the K-1 from the prop firm has several lines, each one for a different type of income (or loss or expense). Depending on the type of income that is being is reported on that K-1, then that income might be required to be netted against a same-type of carryover losses from a retail trading account. Generally one of the biggest issues of misunderstanding is if Sec 475 M2M was elected or not. Some other areas of confusion are Sec 1256 gains and losses, dividend income, forex, interest expense and ETFs.
So basically, if I do not have professional trading status with the IRS regarding the retail account those losses can not be used against the K-1 income even if they are ordinary losses.
Are they from the same tax year? If there are not, I still believe you can only carry forward losses up to $3000/year.
As mentioned before, it depends where the income on the K1 is coming from. On my K1 I have values on line 1 (ordinary business income/loss) and line 11 (other income/loss) Line 1 goes on line 17 on my 1040, basically like regular income. The number on line 11 goes on form 6781 (Gains and Losses From Section 1256 Contracts and Straddles) which basically ends up as capital gains/losses on schedule D proportioned into the short-term and long-term sections of that form (Part 1 line 4 and Part 2 line 11) So in my situation, any gains on K1 line 11 can offset losses on my current schedule D *including* any carryover losses from previous years. Obviously this is a big YMMV - it all depends on the specifics of your situation.
No, not at all. I'll repeat: "Depending on the type of income that is being is reported on that K-1, then that income might be required to be netted against a same-type of carryover losses from a retail trading account." Additionally you should be aware that capital loss carryforwards are not at all necessarily limited to $3,000 per year subsequent to the year the loss was first incurred. Your K-1 and your tax situation sounds like they may be complicated. You should give thought to retaining a tax pro for your tax return preparation. Pretty much as GTS has stated above. That's assuming GTS meant to say "line 11C" because, for example, often "line 11F" can appear on a trader's K-1 and that may or may not have the result that you would be happy with.