Biggest Tax Blunder? - Not carrying forward capital losses - Tax Tip of the Week

Tax Tip of the Week | Apr. 7, 2010 | No. 35Carry Forward of Capital LossesLast week we talked about the possibility of having unused foreign tax credits that have carried-over from prior years.This week we are going to talk about a potentially much larger loss carry forward.If you have investments that you sell, you must determine the gain or loss of that sale on your tax return each year.  With the market being down for the last several years, many investors have reported losses on their tax returns.  In many cases the losses are significant.Unfortunately, you can only report a maximum capital loss of $3,000 on your tax return each year.  (Editor’s note:  this $3,000 limitation has been in place for as long as I can remember and really needs to be increased...but I doubt it will happen.)  I have seen clients who have accumulated $50,000, $80,000 and more in capital losses!One other particularly painful aspect of the capital loss limitation is that the carry forwards cease at death.  So if Uncle Charlie passes away with a $80,000 capital loss carry forward...it’s lost forever.One of the biggest tax blunders we have seen is when we work with new clients who have not carried forward capital losses to which they are entitled.  That is why we always ask to review at least five years of prior tax returns.  There are also other carry forwards we look for (besides the foreign tax credit and capital losses) but they go beyond the scope of this tax tip.Note:  For a refresher on capital gains and losses, review our Tax Tip of the Week: What you need to know about Capital Gains.Questions? Just give us a call if you have any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com.Rick Prewitt - the guy behind TTW...until next week.