Short-term vs Long-term Carryover losses question


M

Michael B.

I finally took a loss with a penny stock that I held over the last 7 years.
So here is my "hypothetical" situation:

I will have a 30K long term capital LOSS showing on my 2007 return
I will have a 10K short term capital GAIN showing on my 2007 return

Will the -30K + 10K = to -20K cary over for next year?

Or is it not possible to offset any long term LOSS towards any short term
GAIN?

Thanks for the feedback...
 
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P

Paul Maffia

What do you mean when you say, "I finally took a loss with a penny stock
that I held over the last 7 years."?

If you mean you sold your holdings and realized a loss, then you have a
loss. If you mean that the market values your holding at zero, then you have
a loss. On the other hand, if you mean that you had a loss and just decided
to declare a loss on your tax return, that's a no no.

Just out of curiosity, why would anyone invest so much money in a penny
stock that they could have a loss of $30,000?
 
P

Phil Marti

Michael B. said:
I finally took a loss with a penny stock that I held over the last 7 years.
So here is my "hypothetical" situation:

I will have a 30K long term capital LOSS showing on my 2007 return
I will have a 10K short term capital GAIN showing on my 2007 return

Will the -30K + 10K = to -20K cary over for next year?
No

Or is it not possible to offset any long term LOSS towards any short term
GAIN?
No again. Short and long term gains and losses are netted on Schedule D.
Yours will show a $20,000 loss. Of that, you apply $3,000 to your 2007
return, carrying the remaining $17,000 to your 2008 Schedule D, where the
netting process starts anew.
 
M

Michael B.

Hi Paul,

1) I said hypothetically a $30K loss
2) Yes, the realized long-term capital loss was MADE yesterday.
 
M

Michael B.

Phil,

Thanks for the reply. I guess if you re-read what I wrote, it does mean
exaclty what you said below.

Another scenario is

$40K short term gain
$25K long term loss

netted would be declaring a $15K loss and then $12K (loss) carry it over for
next year taxes. Right?

If so, then it does not really matter where you have the loss shown for a
carry-over. It's only on the gains does the government care if it is a
short-term or longe-term captial.

Correct?

Thanks again!
 
P

Phil Marti

Michael B. said:
Another scenario is

$40K short term gain
$25K long term loss

netted would be declaring a $15K loss and then $12K (loss) carry it over
for next year taxes. Right?
Not unless they've rewritten the math textbooks in the admittedly many years
since I finished school. This scenario gives you a net $15K short-term gain
with zero carryover.

If when you posted you flipped the gain and loss amounts, yes, your Schedule
D bottom line would be a $15K loss, -$3K would go on line 13 of the 1040,
and you'd have a $12K loss carryover.

Take a look at the bottom of the first page and top of the second page of
Schedule D. That should clear it up.
 
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J

Jim Kingdon

If so, then it does not really matter where you have the loss shown
for a carry-over. It's only on the gains does the government care if
it is a short-term or longe-term captial.
Mostly. See the Capital Loss Carryover Worksheet, which in 2006 was
on page D-7 of the instructions for schedule D. This worksheet is
complicated looking, but if memory serves, it is just dealing with the
various cases (short-term is a loss but long-term is a gain, vice
versa, etc). I think it boils down to "long-term losses carry over to
long-term, and short-term losses carry over to short-term" but I can't
verify that at a glance.
 

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