Capital gains and losses

[rick-nersesian]

As we know, one can use capital losses and/or loss carryforwards to offset gains.  But if you are in a low enough tax bracket, the capital gains are in effect not taxes.  If the latter is the case, does the turbo tax program "know" not to use the losses or loss carryforwards to offset the gains because one doed not need them as the capital gains will not be taxed. 

[tagteam]

Capital losses are always first used to offset any capital gains regardless of the tax bracket. 

If you have both capital losses and capital gains, they're netted, which the program handles properly.

[VolvoGirl]

If you have a negative AGI or negative taxable income it will show up on 1040 BUT it won't reduce the carryover to the next year.

[rjs]

It's not up to TurboTax to determine how to handle losses. TurboTax "knows" to follow the tax law. There is no choice about how losses or loss carryovers are used. TurboTax applies them as required by the tax law.

[NCperson]

@rick-nersesian TT knows that even if you are in a tax bracket where there is no capital gains tax, it follows the rules that the losses, including the carrry forwards, must still be used to offset any gains. 

[rick-nersesian]

thanks for answer.  I understand turbotax will offset gains with losses and loss carryovers.  But are you saying that the law requires ones to use losses to offset gains even if due to low income one would not have to pay capital gains taxes.  Does oe have the choice to NOT use lossess to offset gains if the gains would not be taxed

[rick-nersesian]

thanks - so just want to confirm. You are saying that the law says you must apply capital losses to offset gains, even if the gains would not be taxes because one's income is low

[Hal_Al]

Q. Are you saying that the law requires ones to use losses to offset gains even if due to low income one would not have to pay capital gains taxes?

A. Yes.

Q  Does one have the choice to NOT use losses to offset gains if the gains would not be taxed?

A. No.

[Critter-3]

@rick-nersesian 

As already stated :  If you have a negative AGI or negative taxable income it will show up on 1040 BUT it won't reduce the carryover to the next year.   Review the full return ... view/save the PDF  WITH the worksheets to see how the program follows and handles the carryover if you can't use it. 

[Hal_Al]

You must report any capital losses, including carry over, on your current year tax return. You are not allowed to postpone using it or saving it for a more advantageous time.  Although you have to report it, it may not all get used. The best thing to do is prepare a current tax return (even if you aren't required to file) to accurately calculate the carry over to the next year. If you used TurboTax (TT) last year,  TT will  automatically calculate the carry forward. 

Basically you are allowed to use you standard or itemized deductions to reduce your taxable income before having to use your capital loss.  

Another way to say it is: If your standard (or itemized) deduction is greater than AGI, without capital loss, then all the capital loss is carried forward.

[Richard s]

I don't have losses.  Our joint income is less than $80,000.00 Why is turbo tax still saying I owe tax on my gains

[SusanY1]

If your taxable income, including the capital gain exceeds $89,250 for joint filers, you will pay tax the capital gains tax on your long term gains.

 
You can check your taxable income quickly by following these steps from any screen inside your return
 

1. Click on Tax Tools in the left panel
2. Then Select Tools
3. Then Select View Tax Summary in the pop up box

Look for the line reading"Taxable Income".  If this number exceeds $89,250 then your capital gains will be taxable.  

If your income is below that threshold when the gains are factored in, please let us know so that we can assist with further troubleshooting.   (Also, note that there are some instances where this number may require adjustments to determine the taxability of your long term capital gains, such as when you have excluded foreign earned income.)

[EDITED 3/2/24 9:25 AM PST]
@Richard s 
 

[mesquitebean]

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@ Richard s wrote:

I don't have losses.  Our joint income is less than $80,000.00 Why is turbo tax still saying I owe tax on my gains

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If you are by any chance using the desktop product, you can go into Forms Mode, and in the left column list of forms you can view the Qualified Dividends & Capital Gain Tax Worksheet to see how TurboTax is calculating your tax.  In the list it will be abbreviated as Qual Div/Cap Gn.

[rjs]

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@Richard s wrote:

I don't have losses.  Our joint income is less than $80,000.00 Why is turbo tax still saying I owe tax on my gains

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Are your capital gains short-term or long-term? Short-term capital gains are taxed at the same rates as any other income. Short-term gains are just additional income, the same as wages, interest, etc. Only long-term gains (and qualified dividends) are taxed at lower rates.

The tax brackets for qualified dividends and long-term capital gains are based on taxable income, not total income. But the taxable income includes the long-term capital gains. When you say that your income is less than $80,000, are you including the capital gains?

Where exactly is TurboTax "saying" that you owe tax on long-term capital gains? TurboTax usually just shows you the total tax that it calculates on all of your taxable income. It does not normally break out the amount of tax on specific types of income. Is there an amount (greater than zero) on line 18 or line 21 of the Qualified Dividends and Capital Gain Tax Worksheet, or on line 31 or line 34 of the Schedule D Tax Worksheet? If those lines are zero or blank, you are not paying any tax on long-term capital gains.