How to optimize disallowed loss carryover

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salt_drummer
Posts: 36
Joined: Tue Feb 11, 2020 11:04 am

How to optimize disallowed loss carryover

Post by salt_drummer »

From the Fidelity website on wash sale:
Your loss is added to the cost basis of the new investment. The holding period of the investment you sold is also added to the holding period of the new investment.
Let's say I had $1k in short-term disallowed loss & $5k disallowed long-term loss from stock A last year.
  • How do I apply these losses this year? I have $2k short-term capital gains and no long-term capital gains for stock A.
  • Do these short-term capital gains become long-term due to the holding period of the wash sale from last year?
  • Can I use the $5k disallowed long-term loss from last year to offset this year's long-term capital gains from another stock?
Thanks!
Last edited by salt_drummer on Wed Mar 22, 2023 10:04 am, edited 1 time in total.
jebmke
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Location: Delmarva Peninsula

Re: Disallowed loss carryover

Post by jebmke »

You don't apply them. They are used to adjust your cost basis in remaining shares.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
livesoft
Posts: 86079
Joined: Thu Mar 01, 2007 7:00 pm

Re: Disallowed loss carryover

Post by livesoft »

I think an answer would be:

1. Import your 1099-B into your tax-prep software.

2. Your tax-prep software will do the right thing. Look at your Form 1040 Schedule D to understand what your tax-prep software did.

Remember (after wash sale losses are used to adjust cost basis and in doing so become unrealized):
a. Long-term loss offset Long-term gains.
b. Short-term loss offset Short-term gains.
c. Leftover losses offset leftover gains.
d. Any more leftover losses offset up to $3,000 of ordinary income (i.e. you already offset ALL realized capital gains)
e. Any more leftover losses get carried over the the next year.

I think you have assume that the short cannot offset long and that long cannot offset short. They can as described above.
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erp
Posts: 565
Joined: Wed Feb 01, 2023 4:19 pm

Re: How to optimize disallowed loss carryover

Post by erp »

salt_drummer wrote: Wed Mar 22, 2023 9:54 am Let's say I had $1k in short-term disallowed loss & $5k disallowed long-term loss from stock A last year.
  • How do I apply these losses this year? I have $2k short-term capital gains and no long-term capital gains for stock A.
  • Do these short-term capital gains become long-term due to the holding period of the wash sale from last year?
  • Can I use the $5k disallowed long-term loss from last year to offset this year's long-term capital gains from another stock?
Its not super clear what happened. Either

A. You triggered a wash sale by rebuying the A shares and still have them. Then they somehow gained a lot of value so the built-in 6k loss turned into a 2k gain. Then there's nothing for you to do. You don't have a loss to optimize anymore.

B. You already sold the replacement A shares and they are showing up on the same 1099. Again, there's nothing for you to do since you've already realized the loss (but instead of being on the original shares, they were taken on the newly bought-and-sold shares. Just double-check that their basis did indeed get adjusted up by the wash sale amount).
Topic Author
salt_drummer
Posts: 36
Joined: Tue Feb 11, 2020 11:04 am

Re: Disallowed loss carryover

Post by salt_drummer »

jebmke wrote: Wed Mar 22, 2023 10:04 am You don't apply them. They are used to adjust your cost basis in remaining shares.
How do I adjust my cost basis in the remaining shares? I just filed my taxes with TurboTax for the first time and short-term/long-term capital loss carryover on Schedule D (lines 6 & 14) are blank. Did I file my taxes incorrectly or do I have to manually adjust my cost basis when I file next year?
Katietsu
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Re: How to optimize disallowed loss carryover

Post by Katietsu »

To get the best answer, you need to clarify the situation.

Did you have a wash sale? If so, there should have been a W on your 1099-B for the relevant year for a cost basis adjustment for each relevant transaction.

Or did you have losses that were greater than your gains on your 2021 taxes? This could create a carry forward loss.

If it was a wash sale at Fidelity for a covered stock, then Fidelity should already have adjusted the cost basis for you. If you still own the shares, then if and when you sell them the capital gain will be smaller than it would have been without the wash sale.
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