Can Capital Gains Tax Be Carried Over to the Next Year?

by Alexis Lawrence

The profits from many non-cash financial holdings, including stock, do not get taxed as income on your yearly tax return. Instead, these earnings are considered capital gains. Taxes on capital gains cannot be carried over to the next year. Capital losses, however, can be carried over, which can help offset each year’s gains.

Capital Gains

Any property that you buy solely for investment purposes, including shares of stock, bonds and real estate, is considered a capital asset. These capital assets do not generally incur tax liabilities prior to the selling of the asset, although some exceptions do exist. If you receive dividends from a stock during the course of a tax year, for instance, these dividends become part of your income, and all real estate holdings are subject to property taxes each year.

Capital Gains Tax

The fact that sales of stocks and other financial holdings are kept separate from normal wages is beneficial to a taxpayer, because the maximum tax rate on capital gains remains is only 15 percent, as of 2011. The tax rate for wages earned through employment, on the other hand, tops out at 35 percent as of 2011. So, if you are in the top tax bracket, all of your earnings get taxed at the 35 percent rate, while any capital gains earned get taxed at the lower 15 percent rate.

Capital Gains on Your Return

When you sell an investment property for a gain during a tax year, you must report the entire capital gain on your tax return. You cannot split up the profits and pay only a portion of the tax in the tax year in which you make the sale and then carry over the balance of the gain. You report the entire capital gain by filling out Schedule D of the standard Form 1040 tax return form.

Capital Losses

Unlike capital gains, capital losses have a yearly limit. If you lose money on the sale of an investment, such as a stock or real estate property, you can report only $3,000 of that loss as a capital loss in a single tax year as of 2011. Report capital losses on your tax return just as you report capital gains, by completing Schedule D of Form 1040. Capital losses in a tax year are subtracted from the year’s capital gains and you pay taxes on the net gain.

About the Author

Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.

Photo Credits

  • Eileen Bach/Digital Vision/Getty Images