Capital Loss Carryforward

Say you had a rough year in the market and your losses outpaced your gains by a wide margin. The silver lining? You don't lose those excess losses—they carry forward to future tax years, indefinitely.

Here's how it works. After netting your gains and losses for the year, you can use up to $3,000 of any remaining net loss to reduce your ordinary income. Whatever's left after that rolls into next year—and the year after that—until it's fully used up.

Your carryforwards keep their character, too. Short-term losses stay short-term, long-term losses stay long-term. In future years they offset gains of the same type first, then spill over to offset the other type.

This is especially handy after a big downturn. If you realized $50,000 in losses but only had $10,000 in gains, you'd use $10,000 to cancel out the gains, $3,000 against ordinary income, and carry $37,000 forward for later.

One thing to watch out for: you need to track carryforwards across years. The Schedule D instructions include a Capital Loss Carryover Worksheet for this. Lots of people lose track when switching tax software or accountants. If you have a big carryforward sitting around, it might be a great year to rebalance or take some profits—the carryforward shields those gains from tax.