How to Calculate Capital Loss Carryover

by Matt McGew

The Internal Revenue Service allows you to deduct a portion of your capital loss excess from your current year's taxes. The IRS also allows you to carry over any excess capital loss that exceeds this maximum amount to future tax years. A capital loss is the difference between the lower selling price of an asset and the higher purchase price. Therefore, a capital loss is the opposite of a capital gain. You can manually calculate your capital loss carryover for the current tax year.

Determine the amount of capital gain you have for the current tax year. Your capital gain for the tax year is the sum of all assets sold for a profit during the tax year. For example, assume you sold a house for \$20,000 more than you paid when you purchased this house. This would represent a \$20,000 capital gain. Once you calculate the individual capital gains, add all of the individual gains to determine your total capital gain for the tax year. For example, assume your total capital gain is \$25,000.

Determine your total capital loss for the year. Your capital loss for the tax year is the sum of all assets sold for a loss during the tax year. For example assume you sold a house for \$15,000 less than you paid when you purchased the house. This would represent a \$15,000 capital loss. Add all of your individual capital losses for the year. For example, assume your total capital loss for the year is \$35,000.

Subtract the total capital loss from the total capital gain. Continuing the same example, \$25,000 - \$35,000 = \$10,000. This figure represents your excess capital loss for the year.

Subtract \$3,000 from the excess capital loss figure. The \$3,000 represents the 2011 IRS maximum excess capital loss permitted as a deduction from your current tax return. As of 2011, the IRS requires you to carry over any excess capital loss that exceeds this amount. Continuing the same example, \$10,000 - \$3,000 = \$7,000. This figure represents your capital loss carryover for the tax year.

Tips

• If your excess capital loss for the tax year is less than \$3,000, you can deduct the entire amount of excess capital loss in the current tax year. In this case, you would not have a capital loss carryover.