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Fundranker Blog—Capital Losses

Capital Losses

Even though Fundranker realized short-term capital gains on exchanges in the first half of 2008, the across-the-board selloff we experienced in the second half of the year way more than did in those gains. Fundranker realized sizeable short-term capital losses on exchanges later in the year.

If you realized these capital losses in taxable accounts, the tax code calls for applying these capital losses first against realized capital gains, and then against regular income. Capital losses applied against regular income are limited to $3,000, with the remainder being carried over to the following year. The $3,000 limit is applied regardless of your filing status. It seems unfair, but taxpayers who are married must share the $3,000, regardless of whether they file jointly or separately.

When you have sizeable capital losses, being able to use only $3,000 per year against regular income may make it seem like it will take many years to use them up, but when your investments begin to realize gains again, you can use those capital losses much faster. When you carryover your remaining capital losses to a following year, they again are applied first to capital gains and then to regular income. So when the economy and stock market finally recover, and Fundranker begins to realize capital gains on exchanges, the capital losses carried over from 2008 can be applied against them with no limit. If your capital losses carried over from 2008 exceed capital gains for 2009, then they again are limited to $3,000 that can be applied to regular income, with remaining capital losses carried over still again.

Posted 3/25/09 10:29am ET in Fundranker, Tax Tips

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