How Does Capital Loss Carryover Work ?

This is how the capital loss carryover goes.

(1) Add up all your 2015 capital gains. (2) Add up all your 2015 capital losses plus any carryover loss from prior years. (3) Offset gains one-for-one with losses.

(4) Any extra remaining loss is then applied as a deduction to ordinary income, up to $3,000. (5) Any extra after that is then carried-over to future years.

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The $3,000 ordinary income deduction only applies after all gains have been offset. You get the ordinary income deduction whether you itemize or not.

Also, you must take the ordinary income deduction if you can, even if it doesn't change your tax. If you don't have to file, you must subtract $3,000 from your carryover anyway.

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