How Do I Enter Capital Loss Carryover in H&R Block? Short-Term vs Long-Term

Someone on Reddit asked how to enter capital loss carryovers from 2018 and 2019 in H&R Block when the software could not import prior-year returns. They had two questions: whether the short-term line is for recent losses (e.g., 2020) and long-term for older carryovers, and whether to enter the exact carryover amount or just the $3,000 maximum. Short-term means losses from assets held one year or less; long-term means more than one year. Losses from 2018 and 2019 are typically long-term if the assets were held over a year. You should enter the exact amounts from your prior returns on the correct short-term and long-term lines; the software (and the tax rules) apply the $3,000 limit against ordinary income and carry the rest forward.

Bottom line: Enter the exact carryover amounts from your previous tax returns on the correct short-term and long-term lines in H&R Block. Short-term losses are from assets held one year or less; long-term are from assets held more than one year. Losses from 2018 and 2019 are usually long-term if the assets were held over a year. The $3,000 (or $1,500 if married filing separately) limit is the maximum you can deduct against ordinary income in one year; you do not enter only $3,000 on the carryover line. Unused losses carry forward. For your specific situation, consult a tax professional.

Question from Reddit

I am using H&R Block right now and it is not able to import previous year's tax return to auto-calculate the loss carryover.

I've lost quite a bit in 2018 and 2019 in the market. I am trying to figure out what I am supposed to put into this year's short-term and long-term loss carryovers. There are two separate lines for this in H&R Block.

Is short term for 2020 losses and long term is anything carrying over prior to 2020?

Do I have to put in the exact amount or do I just put in the max available to carry over which is 3k?

Source: Reddit

Analysis

The inquiry revolves around how to report capital loss carryovers from previous years on this year's tax return, specifically distinguishing between short-term and long-term losses. It also addresses whether taxpayers need to input the exact amount of the losses or just the maximum allowable deduction.

Answer

Short-term capital losses are typically losses from the sale of assets held for one year or less. Long-term capital losses are from assets held for more than one year. In your case, losses from 2018 and 2019 would be classified as long-term if the assets were held for over a year.

You need to enter the exact amounts of your carryover losses for both short-term and long-term categories as they appear on your previous tax returns. The maximum amount you can deduct for capital losses in any given year against ordinary income is $3,000 ($1,500 if married filing separately). If your total capital losses exceed your capital gains plus the $3,000 deduction limit, you can carry over the remaining losses to future tax years.

Short-term vs long-term: which line?

Short-term: assets held one year or less.
Long-term: assets held more than one year.
Losses from 2018 and 2019 are long-term if the holding period was over one year. The split is by holding period, not by tax year (e.g., "2020 vs before 2020"), so use the amounts from your prior-year returns on the correct short-term or long-term carryover lines.

Exact amount or $3,000?

Enter the exact carryover amounts from your prior returns for each category. Do not enter only $3,000 on the carryover line.
The $3,000 (or $1,500 if married filing separately) limit is the annual cap on how much net capital loss you can deduct against ordinary income. The software uses your entered carryover and applies this limit when calculating the current year's deduction; any unused loss carries forward.

Applicable Sections

Federal / IRS

IRS Publication 550 discusses the treatment of capital gains and losses, including the carryover rules and deduction limits (IRS Publication 550).

Practical Notes

When reporting in H&R Block, ensure you input the actual carryover amounts from your previous returns to accurately calculate your current year's tax liability.
Keep in mind that any losses not used in the current year can be carried forward to future years, so maintaining accurate records is essential.

Limitations

This answer does not cover state-specific rules on capital losses or any nuances related to specific tax situations.

For guidance tailored to your situation, consult a tax professional. Margen can help you explore options for your tax planning.

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How Do I Enter Capital Loss Carryover in H&R Block? Short-Term vs Long-Term (Reddit Q&A)