Capital loss carryover from last year
A single hotel manager brings a short-term and a long-term capital loss carryover into 2025, then sells two stocks. Schedule D lines 6 and 14, the $3,000 limit, and the carryover to 2026.
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Taxpayer facts
Who this is and what their year looked like.
Wendell is single and manages operations at a resort in Las Vegas. He invests a little through a taxable brokerage account.
He had a bad year in the market in 2024 and could not use all of his losses, so his 2024 return carried some forward. In 2025 he sold one stock at a gain and another at a loss. He takes the standard deduction.
Source documents
The 4 documents you will prepare the return from: W-2 (Wage and Tax Statement), 1099-INT (Interest Income), 1099-B (Proceeds from Broker Transactions), From Wendell's 2024 return.
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Objectives
What a correct return should capture.
- File as Single, and report the wages and the credit union interest. Check whether the interest is enough to require Schedule B.
- Enter the two 2025 stock sales. Both are covered sales with basis reported to the IRS and no adjustments, so decide whether Form 8949 is needed or whether the totals can go straight on Schedule D lines 1a and 8a.
- Bring in the 2024 carryovers: the short-term carryover goes on Schedule D line 6 and the long-term carryover on line 14, each entered as a loss.
- Net the short-term side (line 7) and the long-term side (line 15), then combine them on line 16.
- Apply the annual capital loss limit for a single filer on Schedule D line 21, and carry that figure to Form 1040 line 7.
- Work out the tax. Check whether the Qualified Dividends and Capital Gain Tax Worksheet applies when there is a net capital loss and no qualified dividends.
- Complete the Capital Loss Carryover Worksheet in the Schedule D instructions to find how much of the loss carries to 2026, and how much of it is short-term versus long-term. Note which side the current-year deduction uses up first.
- Reconcile withholding to the refund or balance due, and note that Nevada has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.