A Tax Loss Carryforward (or carryover) is a provision in the tax code that allows you to carry over a tax loss from one tax year to a future year.
Tax loss carryforwards are reported on IRS forms Schedule D, and for real estate or business investments, on Form 8949. When reported correctly, these forms will help you keep track of any capital loss carryover.
Here at Janiczek Wealth Management, our portfolio management and wealth management teams like to keep keen awareness of the status of your tax loss carryforwards, whether generated by accounts managed by us or by outside transactions, because they become useful and valuable to us in our portfolio management.
For instance, one client of ours incurred a $4 million loss on a poor investment made years before he became a client of Janiczek. Once we learned this carryforward loss was available, we were more freely able to trade his account knowing that gains we incurred would be offset by the carryover loss for several years in a row. Thus, while the threshold for making a desirable trade or rebalancing a portfolio is typically higher when we know a client will incur significant taxes as a result of such trades, knowing tax loss carryovers are available helps us make less tax-oriented compromises when considering trades.
What is the best practice? Be sure to have your CPA report to you and us the status of capital loss carryforwards each tax year. Our portfolio management system carefully calculates realized and unrealized gains on every holding in your account. Knowledge of the tax loss carryforward amount allows us to better manage your portfolio.
