ASK KIM
Benefit From Big Stock Losses
by Kimberly Lankford

I have $12,500 to carry over in capital losses (since I had more losses than I could deduct last year). I netted $35,000 in capital gains from the sale of stock this year. Can I offset $12,500 of the $35,000?

Yes. The law allows you to use capital losses to offset capital gains dollar for dollar -- first subtracting short-term losses from short-term gains (investments held one year or less), then subtracting long-term losses from long-term gains (investments held longer than one year). Then use any remaining losses to offset any remaining gains in the other category.

If you still had more losses than gains, you could also deduct up to $3,000 in losses against other kinds of income, such as your salary. Any losses beyond that are carried over to the next year, in which you can first use them to offset capital gains. Then, if you still have more losses left over, you can deduct up to $3,000 of them from your income. You can continue this process every year until you've finally deducted all of your losses.

The only limit on how much carry-over loss you can use in one year is how much gain you have to offset.

When you file your taxes, you'll need to report your capital gains and losses on Schedule D, which has a worksheet to help you with the calculations.