Wednesday, June 10, 2009


Q. We had a $20,000+ capital loss in 2004 that was not claimed on our 2004 Form 1040. Can we still claim this loss?

A. Generally you have three (3) years from the due date of the return to file an amended return to get an additional refund.

The 2004 Form 1040 would have been due on April 15, 2005. So you would have until April 15, 2008 to amend your 2004 return. At this point in time 2004 and 2005 are considered “closed” years and cannot be amended to claim the loss deduction and get a check from Sam.

However, according to TC Memo 1983-318, a taxpayer can claim a capital loss carryover deduction in open years for a loss that occurred in a closed year but was not claimed in that year. You must, of course, adjust the carryforward for any losses that would have been used up in the closed years.

The maximum net capital loss deduction allowed is $3,000 per year. You would begin with tax year 2004. If you had no other capital gains or losses in 2004 you would reduce the loss by the $3,000 that would have been allowed and carry $17,000 forward to 2005. If the original 2004 Form 1040 had shown a net capital gain of $5,000 the $20,000 would first be used to wipe out the gains and only $12,000 would be carried forward to 2005.

The procedure is repeated for tax year 2005. If there are no gains or losses reported $3,000 is deducted from the carryforward from 2004 and the balance is brought forward to tax year 2006. You can file an amended 2006 Form 1040 to claim the loss carryforward deduction.

If the 2005 return reported a net $5,000 loss the 2004 carryover would be added to the $2,000 unused 2005 loss and the total carried over to 2006.

If there were no other gains or losses reported in either 2004 or 2005 the capital loss carryforward deduction on the amended 2006 Schedule D would be $14,000 – the forgotten $20,000 loss less $3,000 each year for 2004 and 2005.


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