J.O., Boca Raton, Fla.
Answer: There is no dollar limit on capital-loss carry-overs, says Barbara Weltman, a tax expert in Vero Beach, Fla., and author of numerous tax guides.
Our reader probably is thinking about a different capital-loss rule. Here's a refresher course on how to take advantage of capital losses:
First, investors can use capital losses to soak up capital gains on a dollar-for-dollar basis. There is no dollar limit.
But let's assume your losses are bigger than your gains, or you don't have any gains. In that case, you can deduct as much as $3,000 a year (or $1,500 if you're married and filing separately from your spouse) of these net capital losses from your ordinary income, says Tim Hanford, a consultant in Bethesda, Md., and a former House Ways and Means tax staffer. "You can carry over any capital loss above that indefinitely into the future," Mr. Hanford says.
Here's an IRS example: Suppose a married couple lost $7,000 on the sale of securities last year and had no other transactions. Their taxable income was $26,000. "On their joint 2012 return, they can deduct $3,000," the IRS said. "The unused part of the loss, $4,000 ($7,000−$3,000), can be carried over to 2013."
So what are the chances of increasing the net capital-loss limits?
"I think there is very little chance of any real tax legislation between now and the midterm [elections]," says Clint Stretch, senior tax policy analyst at Tax Analysts. "The limit is not receiving any particular attention."
It's conceivable the situation might change—but not likely.
The idea of increasing the $3,000 limit "has gotten little attention in Congress" during the past few years, says Mr. Hanford. "It is possible that it could be considered as part of the fundamental tax reform the Senate Finance Committee and House Ways and Means Committee are working on," he says. "However, one factor Congress would have to take into account is the cost to the federal government of increasing the loss limit."
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