Capital losses can carryover to future tax years.
First, capital losses are used to offset capital gains.
Example: if you have a $10,000 capital loss, and a $10,000 capital gain, they will offset each other.
Second, $3,000 of a capital loss can be used to offset ordinary income.
Example: If you have a $10,000 capital loss and no gains, you can use $3,000 of the capital loss to deduct against ordinary income.
If your ordinary income is $50,000, because of the capital loss, you will only pay tax on $47,000 of ordinary income.
Third, any capital loss that is not used in the current year can be carried over indefinitely to offset future capital gains.
Example:If you have $10,000 of capital loss, after using $3,000 to offset ordinary income, $7,000 will carryover to the next year.
Next year, if you have $5,000 of capital gain, you can use $5,000 of your loss carryover to offset this gain, and use the remaining $2,000 to offset ordinary income.
You can use tax loss harvesting to maximize the amount of capital loss carryover for use in future years.
Of course, there are additional rules that apply when you dig into short term gains vs. long term gains, and whether deductions can be used to offset state income. That's why we recommend you seek the answer of a qualified tax advisor to determine exact answers.
