Ask Kim
Use Capital Losses to Offset Gains
If I have capital losses to carry over to a year when I have no capital gain, can I deduct up to $3,000 from ordinary income or dividends?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
November 6, 2006
If I have capital losses to carry over to a year when I have no capital gain, can I deduct up to $3,000 (or lesser amount of the loss) from ordinary income or dividends?
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 (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 also could deduct up to $3,000 in losses against other kinds of income, such as your salary. Any losses beyond that are carried over to future years, where 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 any remaining losses 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. See Instructions for Schedule D for more information.
Gifts and taxes
Recently I gave my son and daughter-in-law a cash gift of $9,000 for their wedding. Is any part of this available for a tax write-off or taxable on my end or theirs?
Neither. You can give up to $12,000 to as many people as you want in 2006 without being subject to gift taxes. If you're married, your spouse can give up to $12,000 to as many people as he or she wants, too. So between the two of you, you could give your son and daughter-in-law up to $48,000 in 2006 without being subject to gift taxes. But neither you nor the newly married couple can write off the gift from your taxes.
