I am so confused about the stock capital losses "carry over" when you do your taxes...
You are allowed to "carry over" up to $3000 in capital losses to the next year(s) of your taxes and this loss will affect your "income". But here is where I am confused...
FOR EXAMPLE: TAX FOR PERSON A
Year 1: Normal Job Income ($50,000) /// Final income = $50,000
Year 2: Normal Job Income ($50,000) + (-$3000) Loss from stocks capital losses /// Final income = $47,000
Year 3: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 4: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 5: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 6: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 7: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 8: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 9: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 10: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Year 11: Normal Job Income ($50,000) + (-$3000) Capital losses "carry over" from Year 2 /// Final income = $47,000
Because of the "carry over" rule, you can deduct $3000 every year from your income from Year 2 to Year 11.
Where I am confused is that, wouldnt this mean that over the course of 10 years. You have lost ($30,000)($3000x10) on paper? (When in reality you only lost $3000 in year 2)
Also, if you continue this "carry over" for say 30 years in a row, would you have "lost" $90,000 on paper? (And you would have $90000 of tax deductions against your normal job income?)
The reality is that, you only ever lost $3000 in total.
lol.. if you only realize a capital loss of $3000, then you can only ever write off $3000. You don't get to just keep using a single loss every single year thereafter. In this example, PERSON A (written as if there should have been a PERSON B?) loses $3k in year 2. If no further loses happen, he/she can carryover up to that $3k into future years until the $3k is exhausted. They could use it all in one year (be it the next year or some year in the future) or they could use $1k of it one year then the other $2k a different year, etc.
Exhausted by ordinary income? Or can only be exhausted by capital gains?
I think you over did it a little with the copy and paste
"he/she can carryover up to that $3k into future years until the $3k is exhausted."
Exhausted by ordinary income? Or can only be exhausted by capital gains?
Either. Capital gains are netted against losses first, then if you still have a loss (between carryover and current year activity), you can reduce ordinary income by up to 3,000, or up to the loss if the loss is less than 3,000.
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